Prudential downgraded Kmart (KM) to hold from buy.
On Thursday Kmart posted a $0.04 Q2 loss from operations vs. a $0.93 loss on a slight rise in same store sales. Analyst Wayne Hood says his downgrade reflects various factors. He says its likely that the company's balance sheet is becoming increasingly leveraged. He notes the potential for a cash squeeze, and difficulty leveraging vendor payables, as well as the risk on debt rating due to increased leverage. Also, he notes recent stock appreciation as a reason for the downgrade.
Hood cut the $0.53 fiscal 2002 (Jan.) EPS estimate to $0.49, and cut the $0.75 fiscal 2003 to $0.60.