On Wednesday, Baird downgraded Kohl's (NYSE:KSS) stock from Outperform to Neutral, reducing the price target from $25.00 to $18.00. The shift in rating comes amid concerns over persistent challenges faced by the retailer, particularly in its core apparel and footwear segments. According to the firm, these difficulties have led to share losses during the critical back-to-school period.
The analyst cited increased competition and volatility in comparable store sales as Kohl's management continues to make changes to the operating model. Additionally, the impending CEO transition, which was announced on Monday, is contributing to the uncertainty regarding the company's outlook. These factors have led to a decrease in confidence in the stock's value proposition.
Baird's new price target of $18.00 reflects a valuation multiple of 5 to 5.5 times the company's expected EBITDA. The firm acknowledges the potential for Kohl's to stabilize and improve its comparable store sales and margins as the management's strategic changes take effect. However, the timeline for these improvements remains unclear in the face of intense market competition.
The firm's stance is that while there is an opportunity for Kohl's to recover, the current risk/reward balance does not favor a more optimistic rating. The analyst's statement concluded with an emphasis on the balanced risk/reward profile of Kohl's shares at the present time, given the various challenges and the uncertain timeline for a turnaround.
In other recent news, Kohl's Corporation (NYSE:KSS) has reported a drop in its third-quarter earnings per share (EPS) to $0.20, according to Evercore ISI. This fell short of both Evercore ISI's estimated $0.36 and the market's expectation of $0.28. The company also saw a significant 9.3% decline in same-store sales, underperforming market forecasts. Despite these challenges, Kohl's gross margin increased by 20 basis points year-over-year, and beauty sales through its Sephora outlets grew by 15%.
Evercore ISI has consequently adjusted its outlook on Kohl's, reducing the price target to $14.00 from the previous $18.00, while maintaining an In Line rating on the stock. The firm also revised its fiscal year 2024 and 2025 EPS forecasts for Kohl's to $1.37 and $1.50, respectively, down from $1.85 and $2.20.
These are recent developments for Kohl's as it navigates a period of strategic repositioning under new leadership, with the appointment of Ashley Buchanan as the new CEO slated for January 2025. Despite the overall downturn, Kohl's sees growth opportunities in expanding product lines, including Babies R Us shops and fine jewelry.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Baird's downgrade of Kohl's (NYSE:KSS). The company's stock is currently trading at a low P/E ratio of 8.3, which aligns with Baird's valuation concerns. Moreover, Kohl's revenue for the last twelve months as of Q2 2023 stood at $17.12 billion, with a revenue growth of -3.59%, reflecting the challenges in the core apparel and footwear segments mentioned in the article.
InvestingPro Tips highlight that Kohl's is trading near its 52-week low, with the stock price falling significantly over the last three months. This trend supports Baird's decision to lower the price target. Additionally, analysts anticipate a sales decline in the current year, which corroborates the concerns about persistent challenges and share losses during key shopping periods.
Despite these challenges, Kohl's maintains a significant dividend yield of 13.14%, having sustained dividend payments for 14 consecutive years. This could be an attractive feature for income-focused investors, although it's important to consider the overall financial health of the company.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Kohl's, providing a deeper understanding of the company's financial position and market performance.
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