) to sell from hold.
Analyst Wayne Hood tells S&P MarketScope that the discount retailer's sales were disappointing in the fourth quarter, and concerns about cash flow have been heightened. He thinks the next six months represent a critical time for the company, and he would not be surprised if the company were to file for Chapter 11 bankruptcy proceedings if trends do not improve. Hood thinks management will be working on ways to improve cash flow (for example, closing stores or moving slower turning inventory out of lower-volume stores).
The analyst cut his $0.43 fourth-quarter EPS estimate to $0.20, and his $0.35 estimate for 2002 to $0.25. Hood estimates that Kmart could be cash flow neutral given its flat 2001 inventories, its 40% payables to inventory ratio, and the fact that $400 million remains drawn down on its revolving credit lines. But he thinks the payable ratio target is at risk.