This morning's initiation of coverage on Sears Holdings (SHLD) by Morgan Stanley could prove to be one of the worst analyst calls of the year. I can understand people who doubt the viability of combining Sears and Kmart in order to turn the franchises around. As an analyst though, I would suggest those bears simply stick a neutral rating on the stock and highlight the risks that go along with banking on this combination.

Slapping a sell on this stock, even at $150 per share, is a very risky proposition and could make the retail group at Morgan look like idiots if certain things go right. The basic premise for the sell rating is that Morgan feels Sears Holdings can not be fixed. That's a fair view, but I think you should at least give them a chance before pronouncing the company dead. The merger just closed and they haven't even had a chance to implement their strategy yet. Those plans are just beginning and could take until 2006 to bear fruit.

There are many catalysts that could send this stock higher over that time. There will be real estate sales. After all, there are Kmart and Sears locations next to each other throughout the country. Retailers like Costco (COST) are struggling to find new store lots and when they do, it takes several years to get permission to build on them. That's how extra off-mall real estate becomes valuable.

Sears Holdings also hasn't announced anything about Sears Canada or some of their other divisions that don't fit in with the main strategy. What will happen with Lands End or Orchard? They have $1.6 billion in cash and a lot of debt outstanding that can be retired early. All of these catalysts are unrelated to reinvigorating the core brand, but matter very much to the value of the business, and the share price.

Sticking your neck out and recommending purchase is a gutsy call (but one I'm willing to make), especially when the stock is up 10-fold since emerging from bankruptcy. However, I think putting the rare sell rating on this stock will prove one of the worst analyst calls of 2005 when we look back on this years from now.