Telsey cuts Kohl’s stock price target to $13, keeps Market Perform rating

On Wednesday, Telsey Advisory Group adjusted their financial outlook for Kohl’s Corporation (NYSE:KSS), reducing the price target from $17.00 to $13.00 while continuing to hold a Market Perform rating on the company’s shares. The stock, currently trading near its 52-week low of $10.91, has seen a significant decline of 55% over the past year. According to InvestingPro analysis, Kohl’s appears undervalued based on its Fair Value metrics.

The analysis by Telsey highlighted that Kohl’s had experienced sales challenges in the third quarter, particularly in its core apparel and footwear categories. Despite notable gains in key growth areas such as Sephora, home décor, gifting, and impulse items, these were not sufficient to compensate for the softer performance elsewhere. Financial data from InvestingPro shows revenue declined 4.33% in the last twelve months, though the company maintains a healthy gross profit margin of 40.12% and offers a significant dividend yield of 17.59%.

Telsey also noted the ongoing momentum in the Sephora partnership and the early benefits from the introduction of 200 Babies R’ Us shop-in-shops. Nevertheless, the analysts believe that the turnaround for Kohl’s, given the current macroeconomic conditions, might take longer and require new strategies. The company’s strong free cash flow yield of 31% and low price-to-book ratio of 0.33 suggest potential value opportunities, according to InvestingPro, which offers 12 additional key insights about Kohl’s financial health and prospects.

Moreover, the announcement of a CEO transition on November 25, 2024, indicated a potential shift in the company’s long-term direction. This change is aimed at stabilizing the business following a period marked by volatility.

The revised price target of $13.00 is based on a 9.4x multiple applied to Telsey’s two-year forward earnings per share (EPS) estimate of $1.39 for Kohl’s. This valuation is consistent with the recent average next twelve months (NTM) multiple for the company. Despite the reduction in the price target, Telsey maintained their Market Perform rating, reflecting a cautious but not bearish stance on the stock’s potential.

In other recent news, Kohl’s has announced several strategic changes aimed at improving its business efficiency. The company plans to close 27 underperforming stores and an e-commerce fulfillment center in San Bernardino, California, by April and May 2025, respectively. This move is part of broader efficiency initiatives and will affect approximately 2.3% of Kohl’s over 1,150 stores nationwide. Additionally, Kohl’s is set to reduce its corporate workforce by about 10%, primarily through eliminating unfilled positions, following the recent appointment of CEO Ashley Buchanan.

Citi analyst Paul Lejuez has adjusted his price target for Kohl’s shares from $14.00 to $11.00, while maintaining a Neutral rating, and he expects the company’s fourth-quarter earnings to align closely with consensus estimates. Lejuez projects a fourth-quarter earnings per share (EPS) of $0.72, slightly below the consensus estimate of $0.75. The company’s comparable store sales are anticipated to decline by 7%, aligning with the consensus estimate. Despite these financial challenges, Kohl’s management reaffirms its financial outlook for 2024, excluding charges related to the store closures.

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