Bet on Kohl's Dividend and Turnaround Potential
Bloomberg News
Shares of department store chain Kohl's (KSS) - Get Report have been pummeled over the past three months, down some 27%, including year-to-date declines of 26%. By contrast, the broader SPDR S&P Retail ETF (XRT) - Get Report -- home to prominent retailers like Amazon (AMZN) - Get Report and Home Depot (HD) - Get Report -- is down just 5% in 2015.
Owing to weaker-than-expected consumer spending, Kohl's hasn't performed the way investors hoped. But the company does pay a solid 45-cent quarterly dividend that yields about 4% annually -- almost twice the average yield paid out by companies in the S&P 500 (SPX) index.
Kohl's stock is cheap, trading at 11 times earnings, or 10 points below the average stock in the S&P 500. And despite its consensus hold rating, the stock's average analyst 12-month price target is $61. Kohl's share trade at around $45 now.
Headquartered in Wisconsin, Kohl's reports third-quarter fiscal 2015 earnings results before the opening bell Thursday. On average, for the just-ended September quarter, analysts expects earning per share to be 73 cents on revenue of $4.44 billion, translating to year-over-year growth of 4% and 1.6%, respectively. For the full year ending in January, earnings are projected to climb 1.6% year over year to $4.31 a share, while revenue of $19.25 billion is expected to climb about 1% year over year.
There likely won't be a better entry point in Kohl's shares, given the improvements and value-creating initiatives Kohl's management has undertaken.
In October, for instance, the company announced a partnership with Deliv, a crowdsourced last-mile delivery company, to fulfill same-day deliveries in nine markets, including Chicago and San Francisco, with plans to expand in Miami, Philadelphia and other markets. Same-day delivery has proven to be an effective strategy for Amazon. It is one that is being modeled by the likes of Walmart (WMT) - Get Report and Target (TGT) - Get Report , among others.
Kohl's same-day delivery will be available to online and mobile shoppers, and should help it improve its sales -- particularly for the holiday season. And its stock should improve too. Based on the company's plan to hire some 69,000 seasonal workers for the holidays, strong sales are expected. That's 3% more workers than were hired in the same period a year ago.
Plus, Kohl's has beaten the average analyst earnings-per-share estimate in two out of three quarters.
Despite recent struggles with same-store sales growth, there's less risk in buying Kohl's stock ahead of Thursday's results.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.