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News that an activist investor wants Kohl’s to consider a sale or spin-off of its e-commerce business may not make company executives smile, but Wall Street certainly seems to like the idea.
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New York-based Hedge Fund Engine Capital LP, which owns about 1% of Kohl’s, said in a letter sent to Kohl’s board on Sunday that the retailer should consider one of two options to help boost the stock price. of the retailer’s troubled stock.
“Given leadership’s inability to create value through operational excellence and strategic initiatives over long periods of time, it is time for the board to come to terms with the fact that the public market does not like Kohl in its present form,” the letter reads.
Ironically, the letter itself may have already given Kohl’s stock a boost, as its shares rose more than 2% in premarket trading early Monday, according to Yahoo Finance.
In its letter, Engine Capital noted that since Michelle Gass took over as CEO of Kohl in May 2018, the company’s total shareholder return is negative 10.5%, “and the stock has undervalued. outperformed the S&P 500 by 90% and the company’s peers by 19.1%. ”
As a result of this performance, Kohl’s “currently trades at one of the lowest valuations in the public market,” the letter adds.
Engine Capital also said that while Kohl’s current market capitalization is approximately $6.7 billion, its e-commerce business alone “could be conservatively valued at $12.4 billion or more” on the basis of recent sales trends.
But while the letter made a lot of noise in the financial media, that doesn’t mean it will resonate with the people who run Kohl’s. As The Wall Street Journal reported, Gass appeared to push back against the idea of splitting off its e-commerce unit, saying the unit works in tandem with physical stores.
Meanwhile, Kohl’s has tried to appease investors by restoring its dividend earlier this year and increasing its share buybacks. The retailer also continues to spend money to strengthen its brand. It is investing in a new partnership with Sephora as well as another e-commerce distribution center and also modernizing more than half of its more than 1,000 stores. Last month, Kohl’s beat its fiscal third-quarter earnings outlook and raised its full-year guidance.
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Investors considering selling Kohl’s stock might want to reconsider, at least for now.
As of Monday morning, the 21 analysts covering the stock have an average rating of 2.4 – halfway between “hold” and “buy”. Five analysts rate it a ‘Strong Buy’, two rate it a ‘Buy’, 10 rate it a ‘Hold’ and four rate it an ‘Underperform’. None have a “sell” rating on the stock.
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