Kohl’s Corp. came off its best day of the year on Wall Street after it reported a better than expected third quarter earnings on Nov. 25 and the stock jumped up 42% to $22.42.
On Nov. 26, the stock jumped 7.5% to $24.10, heading into the unofficial opening of the holiday shopping season.
While some observers may have been surprised the results, others believe shares in the Menomonee Falls-based retailer should be worth more.
“Kohl’s is not going to disappear anytime soon,” said David Swartz, analyst with Morningstar who monitors Kohl’s. “The stock was extremely undervalued and I still think it is because my fair value estimate was $40 (per share) and I may even raise it a little bit after this report.”
Here’s some reasons behind the sharp increase in the company’s stock price.
Sales down but not by much
Kohl’s reported a sales decrease of 2.8% compared to the previous quarter, however many thought it would be a larger decline.
The company had been predicted sales would down 5-7% but it amended its prediction saying it believes sales would be down roughly 3.5-4%.
“It’s still not a company that’s turned it around,” Swartz said. “The outlook was better than expected.”
Promotion heavy holiday shopping season underway
November and December are the most important shopping months of the year, and with Kohl’s already ramping up its promotions, it’s possible the positive momentum can carry through to the end of the year.
“The outlook implies a stronger holiday period than what people would’ve thought three months ago,” Swartz said.
Investors who bet against Kohl’s are paying the price
Some betters on Wall Street are shorting Kohl’s stock meaning they’re betting the price will go down. However when the price goes up, they either have to sell their position or pay more to cover their shorts.
“People were valuing it like it was in bankruptcy,” Swartz said. “But I never thought Kohl’s was in any danger of any kind of financial crisis or anything. But there were people who thought that… there were people shorting (the stock price) to zero. They thought Kohl’s was not going to make it.”
Kohl’s may never return to high flying profit days
For the year, Kohl’s stock is up almost 60% that’s including when it was trading close to $6. Now the stock is up to more than $20 for the first time this year.
And it’s possible the company can continue to improve.
“Kohl’s doesn’t have to get back to the kind of profitability it had 10 years ago. That’s probably not going to happen,” Swartz said.
“But even if it gets better from what it has been, the company still generates a lot of cash flow. It’s still a profitable business.”
This story was updated with additional information.
This article originally appeared on Milwaukee Journal Sentinel: Kohl’s shares up nearly 50% in 2 days after positive shopping outlook
Reporting by Ricardo Torres, Milwaukee Journal Sentinel / Milwaukee Journal Sentinel
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