Kohl’s Shares Up as Investor Urges Business Split

This article was originally published on TipRanks.com

Department store chain Kohl’s Corp. (KSS) is being pursued by an activist investor group to consider splitting its burgeoning e-commerce business, according to The Wall Street Journal. The hedge fund, Engine Capital, owns around 1% of Kohl’s outstanding common shares, and has written to the Board about the separation as a means to improve the stock’s performance.

Following the news, Kohl’s shares shot up more than 2% during pre-market trading at the time of writing.

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Engine Capital’s Letter

According to the letter written to Kohl’s Board, the hedge fund states that considering online sales of $6.2 billion, the company’s digital business alone would be worth $12.4 billion.

Engine also noted that it has held negotiations with private equity firms, who are ready to pay at least $75 a share by way of monetizing Kohl’s real estate. However, the company claims that its e-commerce business works in tandem with the stores.

With the changing business dynamics during the global pandemic, the online/digital channel has become a more profitable and beneficial segment for retailers, with in-store sales taking a hit due to the COVID-19-related restrictions.

Financial investors see more value in digital businesses. Thus, the hedge fund in Kohl’s case, is pushing the company to separate both its online and in-store businesses. According to critics, lagging in-store sales pull back business growth and assigns a premium value to the standalone digital channel.

Latest Results

On November 18, Kohl’s reported a solid beat and raised third-quarter results. Q3 earnings came in at $1.65 per share, and revenue jumped to $4.6 billion, exceeding estimates by huge margins.

The company also raised its full-year revenue to grow by the mid-twenties percentage range as opposed to the earlier low-twenties percentage range.

Consensus View

The Wall Street community has a Hold consensus rating on the stock based on 5 Buys, 5 Holds, and 2 Sells. The average Kohl’s price target of $69.08 implies 42.58% upside potential to current levels. Shares have gained 19.8% over the past year.

Blogger Opinion

TipRanks data shows that financial blogger opinions are 66% Bullish on KSS, compared to a sector average of 70%.

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