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Nordstrom Upgraded on Expected Rack Recovery, Kohl's Downgraded - Jefferies

Stock Markets Sep 15, 2022 03:51PM ET
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© Reuters. Nordstrom (JWN) Upgraded On Expected Rack Recovery, Kohl's (KSS) Downgraded - Jefferies
 
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By Sam Boughedda

A Jefferies analyst Upgraded shares of Nordstrom (NYSE:JWN) to Buy and downgraded shares of Kohl's (NYSE:KSS) to Hold in a note on Thursday.

The analyst also raised Nordstrom's price target to $24 per share from $21 and cut Kohl's price target to $29 per share from $40.

The analyst explained that the firm is lowering its estimates on the stocks to reflect spending pressure risk next year, in line with their macro view.

The analyst stated they are upgrading Nordstrom on expected rack recovery, while relative strength provides support. "We recognize we could be early, but the higher income consumer base is a structural advantage during economic downturns and excess inventory in the industry could benefit Rack merch issues more than expected," the analyst wrote.

Adding: "We lower ests due to macro uncertainty, but are above the Street for profitability. In FY23, we model net sales growth of +1.3% Y/Y (cons. +2.3%), OM% of 4.9% (4.5% cons), and EPS of $2.85 ($2.61 cons). Our $24 PT (from $21) is based on 4.5x EV/FY2 EBITDA (from 4.0x) or 8.5x P/E. Even if estimates next year were cut by 15%, the stock would be trading only at ~8.5x P/E, or ~10x P/E for a 30% cut. We believe self-help initiatives at the Rack provide JWN with additional tailwinds ahead in 2023 that its peers lack, and are encouraged with Rack's return to unit growth. JWN also leads in omni-channel vs. peers."

On Kohl's, the analyst downgraded the stock as they would like to "see the sales trend and margins stabilize before becoming more constructive."

"The co's MT strategy and Sephora transformation, which was unveiled almost 2 years ago, make sense, but the current environment could push out timelines. Our FY23 EBITDA moves lower by 11% to be inline with the Street primarily on lower GM%, which we now model closer to 2019 (vs. +70bps prev.) due to the risk for elongated promotional intensity. Our FY23 OM% is 4.5% vs. MT guide of 7-8%," wrote the analyst.

Nordstrom Upgraded on Expected Rack Recovery, Kohl's Downgraded - Jefferies
 

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