KSS - Kohls

[no_free_lunch]

I wonder if any other investors on the board have been looking at Kohls?  The company runs a chain of department stores in the US so is in a hated industry.  Management seems well aligned and shareholder friendly.  Long term results have been good.  The stock seems cheap especially where we are in the business cycle, e.g. the consumer has not really participated in this recovery yet.

 

Pros:

  - Decreased shares outstanding from 340M to 222M over past 10 years

  - Increase EPS by ~150% over past 10 years

  - Company weather the financial crisis with just a small reduction in earnings.

  - Earnings are currently running around 5% of sales, in past have reached 6-7% of sales.  Hence a relatively modest bump in sales could translate into a 20-30% increase in earnings.

  - Current PE of 11.  In past years it has been in the 15-20 PE range.

  - Current CEO has been in place for a decade (I believe) and with the company essentially his whole career

  - Former CEO, now director, holds $800M of stock.

  - Company seems to be well-run given consistency of revenue growth and earnings.

  - Off-mall locations provide cheaper rent and differentiate it from competitors. 

 

Cons:

  - It's a department store, department stores are old-school.

  - Former CEO sold 25% of position in late 2012.

 

[no_free_lunch]

Positive article in Barron's on Kohl's.  It caused the price to bounce up a few bucks.  At 13.5x current year earnings it is not terribly cheap but probably cheaper than the market, in my opinion. 

 

The bullish case for Kohl's, based in Menomonee Falls, Wis., begins with the retailer's shareholder-friendly capital-allocation policies. From 2010 through 2012 the company bought back $4.6 billion worth of shares, shrinking its market capitalization by 30%, and it plans to continue shopping. It also initiated a dividend in 2011, which it has raised steadily to a current $1.40 a share. The stock yields 2.6%.

 

THESE MOVES PROVIDE "a fair amount of valuation support," John Linehan, head of U.S. equity at T. Rowe Price, told Barron's in a recent interview

 

http://online.barrons.com/article/SB50001424053111904897104579149563981361616.html#articleTabs_article%3D1