Kohl’s Corporation Valuation – November 2015 Update $KSS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Kohl’s Corporation (KSS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Kohl’s Corporation (Kohl’s) is a specialty department store. As of January 31, 2015, the Company operated 1,162 department stores in 49 states and an e-Commerce Website (www.Kohls.com). The Company sells private label, and national brand apparel, footwear, accessories, beauty and home products. The Company’s stores carry a merchandise assortment with differences attributable to regional preferences. The Company’s Website includes merchandise which is available in the stores, as well as merchandise which is available only on-line. Its private brands include Apt. 9, Croft & Barrow, Jumping Beans, SO and Sonoma Life + Style. The Company’s exclusive brands consist of Food Network, Jennifer Lopez, Marc Anthony, Rock & Republic and Simply Vera Vera Wang. It also offers products under the Fitbit, IZOD, Juicy Couture, Gaiam, Nespresso and PUMA brands, as well as Jumping Beans collections featuring Disney characters. It also operates a nationwide loyalty program called Yes2You rewards.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of KSS – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $8,625,977,178 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.57 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 5.94% Fail
6. Moderate PEmg Ratio PEmg < 20 13.02 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.59 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.57 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.04 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

KSS value Chart November 2015

EPSmg $3.41
MG Growth Estimate -1.02%
MG Value $22.02
Opinion Overvalued
MG Value based on 3% Growth $49.40
MG Value based on 0% Growth $28.96
Market Implied Growth Rate 2.26%
Current Price $44.35
% of Intrinsic Value 201.39%

Kohl’s Corp does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned by the low current ratio, short dividend history, and the insufficient earnings growth over the last ten years.  The Enterprising Investor has concerns with the level of debt in relation to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $3.65 in 2012 to an estimated $3.41 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 2.26% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Kohl’s Corporation (KSS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

KSS Charts November 2015

Net Current Asset Value (NCAV) -$16.43
Graham Number $34.28
PEmg 13.02
Current Ratio 1.57
PB Ratio 1.59
Dividend Yield 3.79%
Number of Consecutive Years of Dividend Growth 5



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Most Recent Balance Sheet Figures

Balance Sheet Information Oct15
Total Current Assets $6,203,000,000
Total Current Liabilities $3,939,000,000
Long-Term Debt $4,609,000,000
Total Assets $14,898,000,000
Intangible Assets $0
Total Liabilities $9,424,000,000
Shares Outstanding (Diluted Average) 196,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.87
Jan15 $4.24
Jan14 $4.05
Jan13 $4.17
Jan12 $4.30
Jan11 $3.66
Jan10 $3.17
Jan09 $2.89
Jan08 $3.39
Jan07 $3.31
Jan06 $2.43
Jan05 $2.04
Jan04 $1.59
Jan03 $1.85
Jan02 $1.45
Jan01 $1.10
Jan00 $0.77
Jan99 $0.59
Jan98 $0.23
Jan97 $0.34
Jan96 $0.25

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.41
Jan15 $4.14
Jan14 $4.02
Jan13 $3.88
Jan12 $3.65
Jan11 $3.32
Jan10 $3.11
Jan09 $2.99
Jan08 $2.88
Jan07 $2.49
Jan06 $2.02
Jan05 $1.74
Jan04 $1.51
Jan03 $1.37
Jan02 $1.02
Jan01 $0.74
Jan00 $0.52

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Retail Industry – August 2015
15 Best Stocks For Value Investors This Week – 8/22/15
Kohl’s Corporation Analysis – August 2015 Update $KSS
30 Companies in the Spotlight This Week – 5/23/15
Kohl’s Corporation Quarterly Valuation – May 2015 $KSS

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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