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Kohl's (KSS) looks like a good value at current prices. The company trades at less than 11x 2012 EPS and boasts solid 10% and 2.6% free cash and dividend yields. By year-end Kohl's will have repurchased a whopping 22% of its shares over 2 years and is planning to repurchase approximately $1 billion of stock (10% of its market cap) annually going forward. Sentiment in the name is low given weak comps, down 4% over the past three months and 1.9% YTD. Sales have been hurt by pricing and inventory issues, as well as lapping tough comps from last year. Sales could improve come Fall as Kohl's will be well-positioned on inventory and comps get easier in the back half. Given Kohl's significant cash flow generation, shareholder-friendly management team, and potential for improving sales, I would be a buyer of KSS at this juncture.

Shareholder-Friendly Management Team: Kohl's boasts a solid balance sheet (2x Debt/EBITDAR) and generates a whopping $1 billion per year in free cash flow (10% FCF yield). Management is committed to returning cash to shareholders in the form of buybacks and dividends. Impressively, the company has repurchased 22% of its shares over the past 2 years, and is planning to repurchase $1 billion of stock on an annual basis going forward. The sheer reduction in shares outstanding resulted in KSS raising its dividend 28% this year to $1.28/year. Management believes continued share reduction should allow for annual double-digit increases in the dividend going forward.

Well-Positioned Inventory And Easier Comps This Fall. Management attributes the recent comp weakness to repricing and inventory issues it has been facing since January. Kohl's competitors were becoming aggressive on price, thus in January Kohl's decided to lower prices significant to uphold its value proposition. However, Kohl's didn't have enough inventory and comps suffered, down on average 4% in April, May, and June. Management believes inventories should be well-positioned come Fall. Additionally, Kohl's will be facing easier (0.8%) comps in the back half of the year compared to tougher +2.6% comps year-to-date. The sell-side is doubting much improvement in sales given street estimates of $3.64 are below management's $3.75 guidance. That said, with KSS's cheap 11x EPS valuation, 10% free cash flow yield, and management's commitment to share repurchases and dividend increases, any upside to comps and EPS expectations could be a significant catalyst for the stock.

Source: Kohl's: A Cash Flow Machine With Comps Expected To Improve Come Fall