Under Armour Launch, Sturdy Dividend May Be Safety Net Support For Kohl's

Baird believes Kohl's Corporation KSS shares will get some downside protection from the recent Under Armour Inc UA UAA launch and 4.8 percent dividend yield after reporting weaker-than-expected holiday results.

Kohl’s reported weaker-than-feared holiday sales (November–December comps -2.1 percent) and margins, resulting in lowered F2016 adjusted-EPS guidance to $3.60–$3.65 from $3.80–$4.00). Baird models F2016 EPS of $3.64 and F2017 EPS of $3.70.

Baird expects fourth-quarter results, which will be reported on February 23, to be in line with reduced expectations. The brokerage anticipates EPS of $1.33, matching consensus.

“Kohl's did lap easier comparisons and government retail sales pointed to some sequential industry sales improvement; however, we're mindful that industry traffic remained very choppy,” analyst Mark Altschwager wrote in a note.

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As the challenging holiday results largely reflected in the stock, investors would be most focused on initial F2017 guidance.

The analyst expects top-line growth to remain challenging amid falling apparel demand, weak store traffic and shift of consumer dollars to Amazon.com, Inc. AMZN.

Altschwager maintains a Neutral rating on the shares, saying the “trough valuation, a 4.8 percent dividend yield, likely aggressive buybacks and upcoming top-line catalysts can provide shares some near-term downside protection around the upper-$30s to $40 level.”

At last check, shares of Kohl’s were down 0.36 percent to $41.82. The analyst has a price target of $44.