Mad Money

Cramer: Screwed up firm ultimately worthless?

Cramer checks on the health of Rite-Aid
Cramer checks on the health of Rite-Aid

If you follow retail, you've probably noticed that a couple of stocks declined after their earnings left the Street underwhelmed at best. However, if you're looking to buy dips, Cramer wants you to know something.

He's very concerned about Sears after what he called "its disastrous quarter." Cramer in turn cited a note from Credit Suisse entitled "Thinking about The End" in which the author argues that Sears may be close to worthless as a chain.

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"Let's face facts. Sears is generating negative operating cash flow of between $1 billion and $2 billion [closer to upper end, it looks like] in 2014," analyst Gary Balter wrote. "Unless it sells off real assets while somehow maintaining the cash flow from those assets, this story is not likely to have a happy ending, and that ending continues to depend on suppliers."

Cramer added that there may be additional pressure for the company to liquidate because the real estate it owns could have greater value than the business itself.

To put it kindly, Cramer isn't sure Sears offers individual investors the kind of opportunity he so often talks about when buying a dip; that is a shrewd management, a promising future, good financials and strong margins.

However, there is a decline that may warrant attention. It's Rite Aid.

Shares of beleaguered drug store tumbled as much as 18 percent on Thursday even though The issue that sent investors scrambling involved a drop in the company's 2015 forecast due, in part, to an expected decrease in pharmacy profitability.

"They just totally got their pharmacy business wrong. Totally," Cramer said. "They estimated, incorrectly, several times now, how much reimbursement they would get from pharmacy benefit managers."

However, unlike Sears, Cramer thinks Rite Aid also has some tailwinds.

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Specifically, Cramer likes that Rite-Aid has been remodeling its stores. In the case of other retailers a remodeled store has attracted new customers.

Also Cramer thinks the stock decline may serve as a wake-up call to management, which in turn, could spark aggressive action and turnaround Rite Aid's pharmacy business

"Therefore, I am not willing to write-off Rite Aid," Cramer said. "Let's hope this was the wake-up call they needed."


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