The Street Debates If Now Is The Time To Shop For Kohl's Stock

Kohl's Corporation (NYSE: KSS) disappointed investors Tuesday with an EPS miss in its third-quarter report, along with a downward revision in its full-year outlook.

Benzinga · 11/20/2019 16:16

Kohl's Corporation (NYSE: KSS) disappointed investors Tuesday with an EPS miss in its third-quarter report, along with a downward revision in its full-year outlook.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

Wedbush analyst Jen Redding maintains a Neutral rating on Kohl's stock with a price target lowered from $53 to $50.

Baird analyst Mark Altschwager maintains at Outperform, price target lowered from $65 to $58.

Credit Suisse analyst Michael Binetti maintains at Neutral, price target lowered from $51 to $48.

Wedbush: 'Fairly Valued' At Current Levels

Kohl's started off the quarter on a strong note but lost some momentum from a combination of poor weather trends and heightened promotional activity, Redding said. The company did rebound towards the end of the quarter, but wasn't enough to offset the weakness.

Kohl's ended the quarter with a 67-basis point deterioration in gross margins to 36.3%, which Redding said missed expectations by 30 basis points. SG&A as a percentage of net sales fell 290 basis points to 32.6% due to higher in store expenses and wage pressure, among other factors.

Management said it saw trends improving exiting October, which makes the case for upside to management's revised full-year EPS guidance from $5.15-$5.45 to $4.75-$4.95. However, upside will likely come from easing markdowns over the quarter.

Related Link: Analysts Offer Early Take On Walmart's Q3, Highlight Advantages Over Amazon

Baird: Bounce Back Quarter At A Cost

Kohl's "bounced back" from a difficult spring season and showed positive comps of 0.4% although it was short of the 0.9% expected, Altschwager said. Comps reaccelerated in October although at the expense of gross margins and this trend is likely to play out over the fourth quarter.

The analyst said Kohl's does have some near-term initiatives, including proprietary brands, more active offerings and gifting. Management remains focused on a strong value proposition which "makes strategic sense" in the short term. However, this isn't the right path for the long haul as key metrics like EBIT are on pace to fall.

Nevertheless, Altschwager said Kohl's is positioned to be a "survivor/share gainer" in the disruptive retail market. The stock also offers investors "good value" based on a 14% free cash flow yield and multiple of less than five times EBITDA. Further multiple expansion is dependent on the company showing a "credible plan" for profit growth in 2020.

Citi: Concerning Trends To Continue

Kohl's was expected to "fare better" in the quarter amid new initiatives so a same-store sales miss and downward EPS revision was disappointing, Binetti said. Kohl's gross margins decline from industry-wide promotions will probably continue in the fourth quarter.

Absent any notable external catalyst, Binetti said the broader underlying industry trends across the softline category remains "lackluster" even if consumer strength remains strong.

Price Action

After falling more than $10 in Tuesday's session, shares of Kohl's were trading higher by 1.2% at $47.56.

Photo courtesy of Kohl's.