By Sam Boughedda
A Cowen analyst downgraded Kohl's (NYSE:KSS) to Market Perform from Outperform on Thursday, lowering the firm's price target on the stock to $35 per share from $60.
He wrote in a note to investors that middle-income consumers and Kohl's margins are under pressure.
"We downgrade the shares as a weakening and inflationary consumer backdrop could drive EPS downside and cloud long-term visibility to EBIT expansion," explained the analyst. "Specific concerns are elevated inventory levels, lowered guidance, traffic and promotions, and kid's and women's product execution."
While the analyst did state that "bright spots remain," including a "well-executed Sephora beauty partnership, FCF yield ~6.8%, omni-execution, and loyalty program," he believes Kohl's is vulnerable to the pressure the middle-income consumer is experiencing.
"In previous instances when KSS missed low EBIT expectations (indicated by y/y EBIT decline estimates), there was an average 11% negative stock reaction despite only an average 3% downward revision to estimates, driving multiple contraction. While current Street FY22 estimates are nearly $2.30 or 34% below the previously stated EPS guidance at $6.65 (midpoint), we believe there could be risk to further multiple contraction should KSS miss expectations given lower investor appetite for retail stocks," added the analyst.
Kohl's stock is down over 3.5% Thursday.