Kohl's To Enter a Tough Stretch

Here is a piece we wrote for Jefferson Research the other week on Kohl's Department Stores. Retailers have been having a tough time as they are weak traditionally on a seasonality basis for a few more days. If and that is a BIG "if" the shoppers came through, then our thesis of weakness for Kohl's may have to change. For the time being this is an overvalued stock.

On Wednesday we noted that Robert W. Baird & Co lowered Kohl's (KSS) from Outperform to Neutral. It is funny that they still have a $79 price target and the stock was at $71.89 with a neutral rating. Since we wrote this, the stock has moved to $69.82. We would hate to see what a buy looks like. But then again RobertW. Baird & Co is in Kohl's back yard of Wisconsin and who would want to offend a neighbor around the holiday season. They sighted tough comps for next year as the reason for the rating change.

We note the current Jefferson Torpedo Alert rating is a CAUTION (3).
The last filing is Q3 of 2006. Earnings are due in early to mid February. For January 2007 the company is expected to earn $3.26 and $3.84 in January 2008.

Earnings for January 2006 were $2.43. The growth rates for these years are 34% 2006 to 2007 and 17% for 2007 to 2008. The current P/E for January 2007 is 22. The P/E Ratio for 2008 is 19. If estimates are too high, then one could expect this stock to get hit in 2007. Clearly, the stock is priced to perfection.

The major reason Kohl's has done so well is that the orchestrated a very effective turnaround that is now complete. The turnaround has seen the stock move from $45 to a peak of $75. This represents a move of 67%. In searching the web, we note that several blogs are pointing to heavy discounting by Kohl's. Jefferson sees issues with liquidity driven by a decrease in cash. It looks like some more detailed analysis could be done on Kohl's as the bloom is off the rose.

Last we note that short sellers have given up on this stock and the technical are now rather mixed.