Kohl’s: The Right Sale Price Could Unlock Shareholder Value, Says Morgan Stanley

It’s nice to be loved and Kohl’s (KSS) appears to be getting plenty of that warm fuzzy feeling right now.

Over the past week, the department store chain has received acquisition bids from two potential suitors, following which the stock got another hug from the Street, as investors sent shares up as much as 37%.

Two days after reports indicated Starboard-backed Acacia Research placed an offer to buy Kohl's for $64 a share (amounting to a 6% premium on Friday's close), another report emerged stating Sycamore Partners has upped the stakes, purportedly willing pay at least $65 per share (an 8% premium to Friday's close). The company has acknowledged it has received the bids and the details are now being reviewed.

So, what’s it to do then? Take the money and run, implies Morgan Stanley’s Kimberly Greenberger, who says the bids “could offer a compelling starting point for a sale process.”

“Against unsuccessful plans to reignite sales & margins, a declining EPS path & ongoing investor calls for strategic action, the Board may consider a sale its best option,” the analyst went on to say. “In our view, $64-65 per share appears an attractive sale starting point, & we think the Board may pursue a sale process to maximize value for shareholders following disappointing performance in the last 10 years.”

Against a backdrop of a declining share price and failed attempts to “re-accelerate” sales & earnings growth, for the past few years shareholders have often pushed for the company to take “strategic action.”

The deteriorating performance has also been characterized by contracting store margins, and a “revenue shift into the high variable cost eComm channel.” These have prompted management to carry out a succession of strategic initiatives to turn fortunes around but these have been unable to reverse falling margins and “drive sustainable market share growth.”

Therefore, Greenberger believes a “sale at the right price appears a compelling option to unlock shareholder value.”

All in, Greenberger still rates KSS as Underweight (i.e., Sell), while the $50 price target now suggests shares will fall back by 17%.(To watch Greenberger’s track record, click here)

All in all, Kohl’s has 12 analyst reviews, split three ways: 5 Buys, 4 Holds, and 3 Sells. Overall, the consensus view is to Hold here, to wait and see. (See KSS stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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