Kohl's Should Repeal Activists

 

• Kohl's activists want the company to sale-leaseback up to $4 billion worth of real estate.
• In theory, the company could boost EPS substantially by repurchasing shares, but actual net income would fall.
• The stock is cheap at only 7.5x FY22 EPS targets while trading with a market valuation equal to real estate holdings.
• This idea was discussed in more depth with members of my private investing community, Out Fox The Street. Learn More »

Activists continue to circle at the gate due to Kohl's (KSS) being an extremely cheap stock. The company has very valuable real estate on top of a strong earnings stream which is why a group of activists are lining up to bid on the retailer. My investment thesis remains very Bullish on the stock trading at 7x FY23 EPS targets.

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Disclosure: Long KSS. Please review the disclaimer page for more details. 

Update - March 21

Kohl's didn't provide much in the way of details on the bids to acquire the department store. Though, the suggestion is that no bidder provide a bid in the $70+ range to where the company would accept the bid. 

• Kohl's Corporation (NYSE:KSS) provided an update regarding the board's review of acquisition offers.
• The board acknowledged receiving "multiple" preliminary indications of interest, which were all non-binding and without committed financing.

Update - Feb. 4

Smart corporate moves by $KSS with multiple vultures at the gate. My shares need to see $80+ before interested in a sell.

• Department store chain Kohl's Corp. (NYSE:KSS) gained 2.7% even after the company initially rejected multiple unsolicited bids as being too low. The company also adopted a limited-duration poison pill that expires Feb. 2, 2023.
• Kohl's said that the "valuations indicated in the current expressions of interest which it has received do not adequately reflect the company’s value in light of its future growth and cash flow generation," according to a statement.
• The Kohl's comments come after reports that Sycamore Partners offered to buy the company for at least $65/share, above the $64/share that's reportedly been offered by a consortium led by Starboard Value and Acacia Research Corp. (NASDAQ:ACTG).
• Kohl's (KSS) said its board designated its finance committee to lead the ongoing review of any expressions of interest. The company and the board have also engaged financial advisors, including Goldman Sachs and PJT Partners, and have asked Goldman Sachs to engage with interested parties.

Update - Jan. 24

These offers for $KSS are worthless. Even $70 to $80 is far too low.

-Kohl's Corp. (NYSE:KSS) may be worth $70-$80/share in a potential bidding war after the company confirmed this morning that it has received expressions of interest, according to Credit Suisse. Kohl's skyrocketed 32% in premarket trading.
-The Credit Suisse analysis comes after a CNBC report this morning that Sycamore Partners is willing to pay at least $65/share for Kohl's (KSS), above the $64/share that's reportedly been offered by a consortium led by Starboard Value and Acacia Research Corp. (NASDAQ:ACTG).
-Credit Suisse math indicates that Kohl's (KSS) has $6.5B in real estate value and if Koh's retail operations at valued at 3x-4x EBITDA, it may warrant a value of $70-$80/share, according to analyst Michael Binetti.
-"But considering the dept stores group has only traded at a 5.5x EV/EBITDA on avg in the 3-years pre- COVID including real estate, we doubt the market will re-rate valuation for a dept store with no real estate beyond ~3x," Binetti, who has a neutral rating and $70 price target on Unilever, wrote.
-Separately, Cowen analyst Oliver Chen advises that other strategic and financial bidders may surface with offers of over $85 per share, which would be 5X the EV/EBITDA ratio.