Is Kohl's (KSS) Share Price Run Justified By Current Earnings And Cash Flow Estimates

• If you are wondering whether Kohl's current share price still offers value after a strong run, this article will walk through what the numbers actually say about the stock.
• Kohl's shares most recently closed at US$21.39, with a 7 day return of 5.1%, a 30 day return of 7.2% decline, a year to date return of 0.2%, a 1 year return of 61.3%, a 3 year return of 0.3% decline, and a 5 year return of 36.0% decline, which gives plenty for valuation focused investors to think about.
• Recent headlines around Kohl's have highlighted the share price performance and ongoing interest in the company's position in US retail, which has kept the stock on many investors' watchlists. This context helps frame whether the recent 1 year return of 61.3% still leaves room for value or reflects a shift in how the market views the company's risks.
• Kohl's currently scores 5/6 on our valuation checks. This suggests it screens as undervalued on most of the metrics in our valuation score. Next we will walk through the different valuation approaches behind that score before finishing with a simple way to keep track of whether that value case still holds up over time.

Kohl's delivered 61.3% returns over the last year. See how this stacks up to the rest of the Multiline Retail industry.

Approach 1: Kohl's Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth today by projecting its future cash flows and then discounting those back to a present value. It is essentially asking what the stream of future cash Kohl's might generate is worth in today's dollars.

For Kohl's, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The latest twelve month Free Cash Flow is about $771.8 million. Analysts provide explicit forecasts for the next few years, and Simply Wall St extrapolates out to a 10 year view, with projected Free Cash Flow of $881.6 million in 2035 according to the supplied schedule of ten year projections.

Putting those cash flows together, the DCF model arrives at an estimated intrinsic value of US$65.36 per share. Against the recent share price of US$21.39, this suggests the stock is trading at a 67.3% discount to that DCF estimate. On this basis, Kohl's screens as significantly undervalued according to this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Kohl's is undervalued by 67.3%. Track this in your watchlist or portfolio, or discover 878 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Kohl's.

Approach 2: Kohl's Price vs Earnings

For a profitable company like Kohl's, the P/E ratio is a useful way to check what you are paying for each dollar of current earnings. It quickly shows how the market is pricing those earnings relative to other retailers and the wider market.

What counts as a "normal" P/E depends on growth expectations and risk. Higher expected growth or lower perceived risk often goes with a higher P/E, while slower expected growth or higher risk is usually reflected in a lower multiple.

Kohl's currently trades on a P/E of 12.31x. That sits below the Multiline Retail industry average of 19.41x and below the broader peer group average of 21.30x. Simply Wall St also calculates a proprietary Fair Ratio of 18.32x for Kohl's, which is the P/E you might expect given factors such as its earnings profile, industry, profit margins, market cap and specific risks.

This Fair Ratio goes further than a simple peer or industry comparison because it adjusts for the company’s own characteristics rather than assuming all retailers deserve the same multiple. With Kohl's trading at 12.31x versus a Fair Ratio of 18.32x, the stock currently screens as undervalued on this P/E framework.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1456 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Kohl's Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce Narratives, a simple way for you to write the story you believe about Kohl's, connect that story to your own forecasts for revenue, earnings and margins, see the fair value that falls out of those assumptions, then compare that fair value to the current price to help decide whether you want to buy, hold or sell. All of this is available within the Narratives section on Simply Wall St's Community page, where views are updated as new news or earnings arrive. For Kohl's, you might see one Narrative with a fair value of about US$34 per share and another closer to about US$22 per share, which shows how different but clearly laid out viewpoints can sit side by side on the same stock.

Do you think there's more to the story for Kohl's? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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