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Steve Breyer
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Steve Breyer, CFA, is a former portfolio manager for Integrity Mutual Funds, where he and Martin Koenig, CFA co-managed 5 mutual funds. Prior to joining Integrity, he worked for Verizon Communications as a financial analyst. Mr. Breyer currently serves as a consultant to StockpickerUSA.com, a... More
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  • Kohls Value Proposition Looks Compelling

    Kohl's (KSS) will be reporting its 4th quarter earnings this Thursday, February 23. Analysts Consensus estimate for the company is $1.80 EPS. Much is contingent upon a strong holiday selling season. If Macys (M) and Saks (SKS) earnings releases are any indicator, Kohl's may fare well.

    The Wisconsin-based department store's long-term strategy has been to differentiate itself by transitioning toward private and exclusive product offerings. Kohl's has expanded this segment to approximately 48% of its product mix. According to the company, the private and exclusive offerings have enabled greater control over the production process and resulted in greater pricing flexibility and maintenance of gross margins despite inflation of input materials. The strategy has also resulted in a customer perception of quality merchandise at "value" prices. This perception was confirmed in a recent Consumer Reports customer survey where it received above average scores across all categories in which sufficient responses were received. This positive perception may help Kohl's increase market share at the expense of competitors such as JCPenny (JCP) and Sears (SHLD) which are currently undergoing turnaround efforts.

    Kohl's has also put emphasis on growing its internet business. It quadrupled its online revenues from 2006 to 2010 with a stated goal of achieving $1 billion in sales for 2011 (an increase of 35% from the 2010 level of $743 million. The company's Feb. 2 press release announced it had achieved the $1 billion goal).

    Whether compared versus its peers or on a historical basis, Kohl's represents solid value at its current price and shows potential to reach and exceed the 52 week high of $57.00 of July 22, 2011. Compared to peers JCPenney and Macys, Kohl's represent a more attractive valuation based on trailing 12 month and forward P/E ratios. It has superior operating margins (11.76% vs. 4.89% & 8.89% respectively for TTM), and a lower debt-to-equity ratio (65.51% vs. 68.6% & 118.87% in the most recent quarter). It also trades below its 5 year historical P/E average of 15.4x.

    Company

    Operating Margin - TTM

    Debt / Equity

    P/E - TTM

    Forward P/E

    Kohl's (KSS)

    11.76%

    65.51%

    12.2x

    10.5x

    JCPenney (JCP)

    4.89%

    68.6%

    45.1x

    19.1x

    Macys (M)

    8.89%

    118.87%

    13.4x

    11.3x

    Source: Yahoo Finance

    StockpickerUSA, our proprietary quantitative trading system has KSS buy-rated at 4 out of a possible 5 stars (as of 2/17/12).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: KSS
    Feb 21 11:51 PM | Link | Comment!
  • Pep Boys Stock May Still Have Some Room To Run

    Until recently the stock of Pep Boys (PBY) had exhibited some rather lackluster stock price performance relative to its peers. It got a big boost when it agreed to be acquired by the Gores Group on January 30th. The agreed to acquisition price is at $15 per share with Pep Boys having 45 days to shop for a better deal. While some feel that the shareholders are getting fair value, others tend to disagree. Already the law firms are lining up to launch investigations as to whether Pep Boys management breached its fiduciary duty in obtaining adequate value for the company.

    The company inhabits a unique niche within the Automotive Retail space, providing both automotive services and merchandise. Management has spent considerable resources on a makeover, the focal point being a heavier emphasis on the services aspect of Pep Boys business. The company added 107 service and tire centers during the first 9 months of 2011. Ninety-nine of those centers were acquired in 3 transactions, the biggest being the acquisition of 85 Big 10 stores in the Southeast. The expectation is that the by-product of this strategy will be significant improvement in its margins which are currently at the bottom when compared to its peers. Numerous trends would appear to support a service-focused strategy. These include: ever-increasing technological sophistication under the hood, the closing of many car dealerships following the 2008 economic crisis, an increase in the average age of automobiles on the road (average age of cars is 10 years, light trucks average 9 years). The effects of a poor economic backdrop combined with stubbornly high unemployment should keep this last trend intact for some time to come. What ails the economy is good for Pep Boys. The key challenge will be in the execution of its strategy.

    Despite the recent appreciation (+24%), Pep Boys stock valuation may still climb higher. A recent article in Bloomberg suggests that the company is being valued at 5.9 EBITDA after accounting for net debt. If we use this metric as a yardstick Pep Boys could fetch anywhere between $19 and $32 per share (when compared versus parts provider Advanced Auto Parts AAP and servicer Monroe MNRO respectively). If we use the more conservative number of $19, that is an additional 27% above the $15 offer. StockpickerUSA, our proprietary quantitative trading system has PBY ($15.18) buy-rated at 4 out of a possible 5 stars. For PBY StockpickerUSA.com ticker look up---see:http://www.stockpickerusa.com/tkr/tkr.pl?=pby

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: PBY
    Feb 15 10:43 PM | Link | Comment!
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