Kohl’s said last week that it had ended buyout negotiations.
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Kohl’s stock fell Tuesday as analysts trimmed their expectations for the department store, which for now appears poised to remain an independent company.
Kohl’s said on Friday that it had ended buyout negotiations with Franchise Group. Takeover talk had buoyed Kohl’s (ticker: KSS) for much of the first half of the year, as Barron’s noted that going private would mean shareholders wouldn’t have to navigate what’s shaping up to be a tricky year for retail. Yet downbeat earnings and a worrisome outlook for consumer spending reportedly led to Franchise Group (FRG) wanting to lower its offer. After walking away from the table, Kohl’s ended its strategic review process and lowered its sales outlook for the second quarter.
The shares tumbled on Friday and are down 2.2% to $28.68 in recent Tuesday trading. Analysts continue to weigh in on the news, and the Street’s two bears are doubling down on their skepticism.
Morgan Stanley’s Kimberly Greenberger reiterated an Underweight rating and halved her price target to $19. She writes that inventory growth “well in excess of sales growth” could pressure margins in the second quarter, while Kohl’s will “need to clear through excess inventory” as consumer demand wanes.
UBS’s Jay Sole argues that those still holding out for a sale are probably mistaken, and so full-year sales estimates on Wall Street will likely have to come down significantly. He writes that consensus overall underestimates “the pressure on Kohl’s earnings from share loss as consumers migrate to online pureplay channels, retailers with better value-for-money propositions such as TJX Cos . (TJX), and brands’ own stores and websites.” He has a Sell rating and $32 target on the stock.
That said, Kohl’s bulls remain.
Deutsche Bank’s Gabriella Carbone reiterated a Buy rating while lowering her target to $37 from $68. “When we take a step back and dig through possible EPS [earnings per share] outcomes for FY22, we believe current valuation is attractive and think the risk/reward is more favorable to the upside.”
Adopting Kohl’s prepandemic trough multiple of 7 to 7.5 times means that the stock is currently implying less than $4 a share in earnings this year, she notes; according to FactSet, consensus calls for EPS of $5.17.
Likewise, Guggenheim’s Robert Drbul kept a Buy rating on the stock, while cutting his target to $44 from $68. He writes that he is “optimistic about the company’s commitment to its strategic plan and expect Kohl’s Board to remain open to any opportunities to maximize shareholder value, including share buyback and real estate monetization.”
\While analysts may be readjusting their expectations, the average price target on the Street is still almost $40, which represents nearly 40% upside from recent levels.
Write to Teresa Rivas at [email protected]
