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Company Profile

Almost 50 years in the making since Kohl's (KSS) opened its first department store, the company now boasts the ownership of 1,100 stores and 130,000 employees. Kohl's focuses on family-oriented, value-oriented specialty brands, offering both national and Kohl's exclusive brands.

Kohl's has scheduled its earnings announcement for May 10 at 7:00 a.m. ET, and will hold a conference call at 8:30 a.m.

Current Analyst Estimates

The consensus analyst estimate is for Kohl's to report earnings of $0.61/share, falling midway between the low end of the range ($0.60) and the high end ($0.62). The mean estimate for revenue comes in at $4.25 billion, between estimates for revenues as low as $2.22 billion and as high as $2.31 billion. The estimated earnings number, if attained, would represent a year-over-year earnings decline of 11.6%, while the revenue growth, if it comes in at consensus estimates, would represent growth of 2.2% from the same quarter a year ago. Earnings and revenue estimates are derived from the 16 and 18 analysts covering the stock, respectively.

Consensus Earnings Estimates Trend

Consensus estimates for earnings have remained steady at $0.61 over the past 60 days. Three months ago, however, the consensus earnings were slated for $0.77/share, a significant premium to the current estimate.

Current Analyst Price Targets

There have only been two significant events related to analysts covering the stock for 2012. The first was a downgrade by Argus from Buy to Hold; however, no price target was given. The second came in mid-April from UBS, which initiated coverage of the stock with a neutral weighting and $53 price target.

Ratio Analysis

To get a sense of the current valuation with respect to its competitors, below is the ratio analysis for Kohl's vs. Target (TGT) and TJX Companies (TJX), along with the industry and S&P 500 averages.

KSSTGTTJXIndustryS&P 500
Price / Earnings11.6412.9521.28151.315.3
PEG0.841.101.60------
Price / Sales0.660.531.320.41.3
Price / Book1.932.359.602.22.2
Dividend Yield2.52%2.16%1.11%1.5%2.1%

Other significant competitors in the department store industry include Macy's (M), Saks Incorporated (SKS), Nordstrom (JWN), and J.C. Penney (JCP).

Fair Value Analysis

The valuation of discounted cash flows is an effective tool in identifying the intrinsic value for well-established companies. The input for the analysis is as follows:

Input
Revenue Growth Rate (Current Year / Ongoing)4.2% / 2.7%
Cost of Goods Sold (COGS)(% of Revenue)62%
Operating Expenses (% of Revenue)27.6%
Tax Rate34.7%
Weighted Average Cost of Capital11%

Over the previous four years, the company had been able to better manage its cost of goods sold. However, that trend may be turning, so the analysis will use a modest 0.2% increase in cost of goods sold for 2013 and beyond. Operating expenses for the company have been relatively inconsistent; thus, for the purposes of maintaining a conservative analysis, I've used 27.6% for operating expenses as a percentage of revenue, slightly above the mean for the previous five years.

Also higher from the year prior is the company's tax rate, which I've placed at 34.7% to be in line with its five-year average tax bracket. This change allows for any variability that might occur due to a changing tax code. The result is an estimated fair value of $51.31/share. Currently, shares trade for $50.86, reflecting a 0.9% discount vs. estimated fair value.

Source: Earnings Preview: Kohl's