The stock trades above a level that we would view as appropriate for the current earnings that, absent signals of improvement or takeover, would imply downside.

What's going to drive stock gains going forward is the earnings, and the current crop of earnings may have already been accounted for. I'm looking for the earnings in the second quarter and particularly the second half of the year to drive stocks higher.

While the counter still trades at a discount to our 16.5 times market price-earnings ratio, its current premium over our fair value estimate and strong price appreciation over the past few months suggest that the issue has temporarily outrun its fundamentals, with no further upside in the next 12 months.

At first glance, this seems like a strange deal as investors in Sears Holdings are looking for cash generation, not new investments.

The two weak links in the store are apparel and consumer electronics. One could have had a nice nap in the consumer electronics section given the light traffic. Conversely, appliances were buzzing.

We're looking for expenses that are coming in line and gross margins that are working, and that's what we saw. These results give us more confidence that Sears can continue to improve earnings in 2006.