TD Cowen cuts Kohl’s stock price target to $8 from $16

On Wednesday, TD Cowen analyst Oliver Chen adjusted the financial outlook for Kohl’s (NYSE:KSS), slashing the price target by 50% to $8.00, down from the previous $16.00, while maintaining a Hold rating on the company’s shares. The target cut comes as the stock trades near its 52-week low of $8.75, having declined over 60% in the past year. According to InvestingPro analysis, the stock appears undervalued at current levels, trading at a modest P/E ratio of 8.6x. Chen cited the need for essential changes at the retailer, emphasizing a long road ahead to fix products, stores, and value propositions.

Kohl’s recently reported its fourth quarter earnings for the fiscal year 2024, delivering a 30% increase in earnings per share (EPS) at 95 cents, which surpassed Wall Street’s expectations of 73 cents. Despite this beat, comparable store sales declined by 6.7%, which was slightly better than the anticipated 6.8% decline. The company’s forward guidance for fiscal year 2025 presented a less optimistic picture, projecting EPS significantly below analyst expectations, ranging between 10 and 60 cents compared to the consensus of $1.22. Additionally, Kohl’s announced a substantial 75% cut to its quarterly dividend, now set at 12.5 cents, though InvestingPro data shows the company has maintained dividend payments for 15 consecutive years.

The analyst pointed out that the company is taking necessary steps to secure a better future by reinvesting in product categories and private brands, simplifying its value-messaging, and modernizing store layouts. Chen believes that the greatest opportunities for Kohl’s this year include driving higher conversion through a simplified promotional strategy, improving the balance between private and market brands, and delivering newness in core apparel, which makes up about 70% of the product mix, while maintaining growth in other categories such as Sephora, home decor, and impulse items.

The revised price target of $8 is based on a projected EPS of 63 cents for fiscal year 2026 and a price-to-earnings (P/E) ratio of 13 times. Chen’s commentary reflects a cautious but hopeful outlook for Kohl’s as it navigates through its strategic changes in an effort to realign its business with market demands and consumer expectations.

In other recent news, Kohl’s Corporation reported its fourth-quarter 2024 earnings, achieving an adjusted earnings per share (EPS) of $0.95, which surpassed the forecast of $0.77. The company met revenue expectations with $5.18 billion, although full-year sales saw a decline of 7.2%. Despite the earnings beat, analysts at UBS and Telsey Advisory Group expressed concerns about the company’s future, with UBS lowering its price target for Kohl’s shares to $5 and maintaining a Sell rating. Telsey also reduced its price target to $10, maintaining a Market Perform rating, citing challenges in the retailer’s turnaround plans.

Kohl’s new CEO, Ashley Buchanan, has prioritized improving product offerings and customer experience, yet the company’s forecast for fiscal year 2025 remains below market expectations. UBS’s projections for Kohl’s earnings per share in fiscal year 2025 are significantly lower than the consensus, anticipating weaker-than-expected earnings. The company plans to reduce selling, general, and administrative expenses by 3.5% to 5% in 2025 as part of its cost-cutting measures.

Kohl’s faced a challenging quarter with net sales declining by 9.4% year-over-year and comparable sales dropping by 6.7%. The company ended the year with $134 million in cash and cash equivalents, indicating a stable financial position despite declining sales. Analysts have highlighted the need for Kohl’s to regain customer loyalty and improve its product assortment and value proposition to stabilize its operations and return to profitability.

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