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Company Profile

Almost 50 years in the making since Kohl's (NYSE: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 (NYSE:TGT) and TJX Companies (NYSE: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 (NYSE:M), Saks Incorporated (NYSE:SKS), Nordstrom (NYSE:JWN), and J.C. Penney (NYSE: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