Kohls Corporation (NYSE:KSS), whose stock has been on a tear since early-2013 - shares are up ~75%, just announced a guidance update last week that has shares trading at all-time high levels not seen since 2007. The company pre-announced Q4 comp sales growth of 3.7% and updated its fiscal 2014 diluted earnings per share guidance to $4.20 - $4.22.
All this after three straight quarters of missing revenues expectations and two out of three quarters missing EPS expectations. So, you would think that this would be the time for management to be getting uber-bulled up and pounding the table to analysts for higher price targets and institutional buying. Unfortunately for KSS bulls, one member of management has taken the return to all-time highs as a reason to dump shares.
Kenneth Bonning, sr. executive and vice president, in a Form 4 that went public on SEC.gov on 02/06/2015 disclosed that he sold away ~20% of his pre-option exercise holdings at ~$66.50. Excluding 85,925 shares of unvested shares of restricted stock Mr. Bonning sold away a whopping ~55% of his pre-option exercise holdings.
I believe this sale to be highly questionable, especially with shares trading where they are and with a steady faction of analysts beginning to believe shares might be reaching levels of being overvalued. SA alone has had 3 of its last 7 articles published with a bearish tone.
Analyst ratings taken from Thomson Reuters I/B/E/S Database show a mixed picture of expectations as well:
The mean and median price targets of 16 analysts show targets below current trading levels with the high target only showing 10% more growth ahead before reaching target.
I personally think KSS has room to run, especially when looking at the fact that the company has an in-line EPS multiple to peers [but lower than both Nordstrom (JWN) and Target (TGT)], an in-line PSR multiple to peers, and just announced indications of what should be a blowout Q4. I think that KSS also stands to benefit from a continuation of low gasoline prices and from what should be an early and extended warmer spring:
Regardless of this Mr. Bonning's sales have to be cause for questioning in the very least from KSS longs. If he's selling on the highs should I really be buying?
I'll be taking a long position in KSS via the APRIL 17, 2015 CALL options with a strike price of $70 and a premium of $2.65. I would love to buy the common stock instead, but the insider selling will force me to take a levered position with less net dollar exposure but a more zero sum exposure, which I'm fine with.
I recommend those considering a long position consider net exposure as well until 1) an explanation can be provided or 2) KSS reports Q4 earnings which should provide the next wave of momentum buying and potential analyst upgrades.