Kohl's Corp (NYSE:KSS)

CAPS Rating: 3 out of 5

The Company operates family-oriented, department stores that feature quality, national brand apparel, footwear, accessories, soft home products and housewares targeted to middle-income customers.

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Player Avatar kurtdabear (32.47) Submitted: 11/9/2012 3:27:06 PM : Underperform Start Price: $48.97 KSS Score: +29.48

KSS is borrowing money to buy back shares at a time when its shares are pricy. Apparently this is aimed at distracting investors from the fact that sales are slowing and inventories are rising. The truth should make itself quite evident over the next quarter or two.

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Member Avatar JohnCLeven (75.84) Submitted: 11/9/2012 10:06:07 PM
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Greetings,

Could you please explain to the reason you believe KSS is pricy? By the typical metrics, KSS looks cheap. 1.07x Graham number, 12x earnings, EV/EBIT 6.4, 13x free cash flow, p/s 0.7. Perhaps i'm missing something?

KSS's share price is at the same level it was 12 years ago, but the company has grown by double digits annually over those 12 years. Consensus future growth estimates 10-11% per yr. I think the company is a great value at these levels.

Money is so cheap right now. As long as KSS's cost of borrowing remains significantly below the companies return on capital, (3 yr avg ROC =12%) wouldn't taking on a little debt and buying back some (undervalued) shares be a good long term decision?

Then again, i'm still new at this investing thing, and I could be way off base.

Care to enlighten me?

Member Avatar kurtdabear (32.47) Submitted: 2/6/2013 11:38:12 AM
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Sorry to be so late replying. I haven't been spending much time on M.F. lately (as my recent ranking shows). I meant "pricy" in terms of market price not absolute valuation. The stock was trading within a couple of dollars of it's high for the year and more than $10 off its low. Furthermore, though this is just a personal preference of mine, I'd rather see a company with a debt-to-equity ratio of over 70% work at reducing debt rather than borrowing still more money for unnecessary programs such as stock buy-backs. (Since money is fungible, you might as well say they were borrowing the money to pay the dividend as to say it's for the buy-back.) Also, regardless of how low interest rates may be today, debt must be either paid back or re-financed down the road, whereas common stock does not.

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