For one, BJ’s stock is cheap and getting cheaper, trading at around five times its cash flow. That’s especially compelling to private equity firms routinely shelling out more than eight times cash flow for retail assets — and taking some heat lately for overpaying.

BJ’s has virtually no debt and owns about 40 percent of its real estate, both seen as positives to potential buyers.

“BJ’s is concentrated in the Northeast in good markets,” said an investment banker who did not want to be named. “There is $800 million to $900 million in real estate value in this company alone.”

It sends us back to the days when pundits were speculating that Lampert’s buyouts of Sears and K-Mart were all about the real estate. Boy were those pundits fooled when Eddie turned out to have an affinity for merchandising. Still, he may just be playing his cards close to his vest while waiting to put the last piece into the puzzle.

Could BJ’s be that piece? They are having trouble right now:

If you’re looking to harness cash flow and lever it up a bit, BJ’s could be a very good investment for someone,” said Patricia Edwards, managing director and retail analyst at investment firm Wentworth, Hauser & Violich. “It’s not a bad business, it’s just a tough business.”

BJ’s, based in Natick, Massachusetts is concentrated in the pricey U.S. Northeast. Its estimated 2007 earnings before interest, taxes, depreciation and amortization – a cash flow measure – is $333.49 million, according to Reuters Estimates.But the company is in the unenviable position of competing against two of the toughest players in the retail discounting sector — Wal-Mart Stores Inc.’s (WMT) Sam’s Club and Costco Wholesale Corp. (COST). BJ’s is the largest player in the Northeast, but it is only a matter of time before Costco and Wal-Mart, both hungry for expansion, move in with full force.

By buying BJ’s, Sears could fight Wal-Mart’s fire with fire – having its own discount/wholesale one-two punch.

Will it happen? We doubt it. All this is speculation – both the article and our own extension to SHLD. But it’s fun to speculate about mergers and acquisitions, and we didn’t want Reuters to have all the fun.

Jos a Bank (JOSB): Men’s clothing retailer JoS. A. Bank Clothiers Inc. said Thursday that sales at stores open at least one year, or same-store sales, increased 8.5 percent for the month of June, easily beating Wall Street expectations for a 4.3 percent boost.

BJ’s Wholesale (BJ): June sales fell 0.1 percent at its stores open at least a year as record-breaking rainfall hurt demand, and it lowered its quarterly profit forecast. Analysts, on average, expected 2.4 percent growth, according to estimates compiled by Reuters.

TJX Companies (TJX): Discount clothing retailer TJX Cos. on Thursday said June same-store sales rose 4 percent, beating both internal and Wall Street estimates, and prompting the company to estimate second-quarter earnings will be at or above the high end of its previous forecast.

Wall Street expected same-store sales, or sales at stores open at least a year, to add 2.7 percent, according to Thomson Financial.

Other Notable Retailers

Wal-Mart Stores Inc. (WMT) and other top U.S. retailers posted disappointing June sales on Thursday as soaring energy prices and record-breaking rains in the Northeast curbed consumer spending.

But mid-priced chains such as J.C. Penney Co. Inc. (JCP) and Kohl’s Corp. (KSS) reported strong gains, suggesting that some shoppers stayed away from more expensive department stores. Federated Department Stores Inc. (FD), owner of Bloomingdale’s and Macy’s, recorded lower-than-expected sales.

Overall, sales rose 2.8 percent at stores open at least a year — a key retail measure known as same-store sales. That was slightly below forecasts for a 3 percent gain, according to research firm Retail Metrics.

Apparel retailer Limited Brands Inc. (LTD), warehouse club operator Costco Wholesale Corp. (COST), and home decor chain Pier 1 Imports Inc. (PIR) were among the chains missing Wall Street’s sales targets.