Kohl’s downgraded, broader department store targets slashed at BofA
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Weakening consumer demand drove Bank of America analyst Lorraine Hutchinson to rein in estimates across department store retailers on Thursday.
In a note to clients reassessing the industry, Hutchinson reduced full-year earnings estimates for the stocks covered by an average of 16% as inflationary pressures, slowing sales, and ballooning inventory figures all bode poorly for the sector. As such, price targets across her coverage that includes Nordstrom (JWN), Kohl’s (NYSE:KSS), Dillard’s (DDS), and Macy’s (M) were slashed by an average of 35%.
With risks of a recession increasing, she indicated even steeper declines than previous pullbacks could be in store. In fact, she suspected action in the space could be even worse than that seen in the Great Recession.
“2021 was a year of surging revenues from pent-up demand and above-peak margins thanks to lower inventory and higher than planned sales,” Hutchinson acknowledged. “We think the key debate around estimates can be divided into two buckets: how much of the pent-up demand and pandemic-recovery margins will be sustained and [to what degree] the unwind of those factors will be exacerbated by a recession.”
In accordance with the estimate trimming, Hutchinson’s take on these questions took a more pessimistic tilt. Headlining the reined in targets was Kohl’s (KSS), which saw its price target not only nearly-halved from $50 to $26, but was downgraded to a Sell-equivalent from “Neutral”.
“We are downgrading Kohl’s (KSS) back to Underperform to realign it with our negative view on the department store industry; we have been concerned about fundamentals but were Neutral given the possibility of a take-out,” Hutchinson explained. “With a deal off the table, we see risk to estimates and the stock from here.”
Kohl’s shares fell about 2% in premarket hours on Thursday.
Read more on broader reassessments of Kohl’s as a standalone entity.
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Comments (10)
If M were to reach TTM Rev of $30 by 2026 and a 5% net margin assumes a $1.5B net profit or $7.5 share earnings post buy back. A market multiple of 8 for macys is $60/share target base case. My bear case would be $4 and a 6 multiple at $24 and the bull case is $2B net income and $10 eps with an 8 multiple for $80 share.
This makes Macy's undervalued at even the bear case scenario. I am long Macys and will continue to accumulate and add under $24.This analyst is just wrong about Macy's and why I don't trust ANY of them.
