BofA Turns Bullish On Kohl's, Highlights Recovery Trends, Balance Sheet

Multiple department stock stocks are down around 60% since the start of 2020, but differentiated stores like Kohl's Corporation KSS have upside potential moving forward, according to BofA Securities.

The Kohl's Analyst: Lorraine Hutchinson upgraded Kohl's from Neutral to Buy with a price target lifted from $20 to $27.

The Kohl's Thesis: Kohl's stands out from other department stores, as 95% of locations are in the off-mall format, Hutchinson said in the upgrade note. (See her track record here.)

As of June 9, 90% of its store fleet had reopened, and these locations were running at 75% of last year's volumes, the analyst said. Encouragingly, stores that opened the earliest are showing superior trends, she said. 

Online sales were up 24% in the first quarter, up 60% in April and up 90% in May, Hutchinson said.

The case for buying Kohl's stock is also based on its "relatively healthy" balance sheet, which includes $2 billion in cash and net debt of $2.9 billion versus $2.6 billion at the end of the fourth quarter, the analyst said.

The company should be able to keep near-term cash burn "in check," in part from a reduction in capex from prior plans of $750 million to $250 million, she said. 

Finally, Kohl's lease-adjusted debt/EBITDA stands at 2.6 times, which makes it "one of the healthiest" balance sheets in the group, according to BofA Securities.

KSS Price Action: Shares of Kohl's were trading higher by 5.37% at $21.38 at the time of publication Wednesday.

Related Links:

Retail Pro Says Giants Like Amazon, Walmart Will Prevail After Coronavirus: 'It's Not Fair'

BofA Upgrades Hibbett Sports On Retailer's Pandemic Positioning

Public domain photo via Wikimedia.