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Kohl's Climbs as Cowen Notes Moves to Attract Younger Shoppers

Cowen upgraded Kohl's and raised its price target on the stock by a third, reflecting a number of strategic moves at the department-store chain.
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Shares of Kohl's  (KSS)  jumped on Wednesday after analysts at Cowen upgraded the department-store chain to outperform from market perform and raised its stock-price target by a third, citing its moves to attract younger shoppers. 

The firm raised its target on the Menomonee Falls, Wis., retailer to $52 a share from $39. 

Kohl's shares at last check were 6.3% higher at $46.10. 

The chain "is positioned to exit the pandemic in a stronger competitive position than it entered," analyst Oliver Chen wrote.

"Mix is pivoting toward more productive and millennial-focused categories as active should grow to 30%, partnership with Sephora LVMUY is likely a game changer, women's-apparel reset should stabilize trends, and accepting Amazon  (AMZN)  returns is a traffic driver."  

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Wall Street is underestimating Kohl's earnings potential, according to Chen. Cowen raised its earnings estimates for 2021, 2022 and 2023 to $3.03, $3.59, and $5.31 per share. Those estimates are above Street estimates by 23%, 52%, and 1% respectively. 

The Sephora makeup partnership and its activewear and women's-wear reset will drive relevance with younger shoppers and increase store productivity, according to Cowen. 

"KSS has expertly turned stores into omnichannel hubs," Chen said. 

The chain "also has one of the most compelling loyalty programs in retail with 30 million highly productive members. Reintroduction of the dividend in first-half 2021 is also a positive, as we expect KSS to balance growing the dividend with paying down debt," Chen said. 

For a base case, Cowen expects physical store traffic to improve as the coronavirus pandemic lockdowns unwind. Pressure on profit margins should ease as stores reopen, he said.