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Stifel Sees 'Reasonable' Buyout Value For Kohl's At $95

Javier Hasse
  • The Wall Street Journal reported that Kohl's Corporation (NYSE: KSS) is considering breaking up or going private.
  • The market capitalization of roughly $9 billion values the company at only half of its estimates sales for 2015.
  • In a report issued Monday, Stifel analysts Richard E. Jaffe, Megan E. Roesch and Samantha Shapiro Swerdlin shared their view on the issue and looked into the possibility of a leveraged buyout (LBO).

The WSJ report led analysts at Stifel to consider Kohl's as a potential LBO candidate. Based on similar recent transactions, the analysts think that an 8x EV/EVITDA multiple would be reasonable. This would imply an approximate share price of $95, which represents an 89 percent premium to current valuations.

However, "This would require significant additional debt, perhaps as much as $15 billion." Assuming an interest rate of 8 percent, additional interest expenses would amount $1.2 billion, with an existing $315 million projected for 2016. The $1.5 billion in interest expense and the firm's estimated EBITDA of $2.68 billion in 2016 "suggests an LBO is possible, pending financing," the research note assured.

Assuming a lower EV/EBITDA multiple of 6.5x, a takeout at $75 would still imply 50 percent upside potential at substantially lower debt levels.

The analysts believe that Kohl's management "is prudent in exploring all options to enhance shareholder value and it appears that an LBO is feasible and one that would be attractive to shareholders."

The firm reiterated a Buy rating on shares of Kohl's.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Latest Ratings for KSS

Date Firm Action From To
Nov 2015 Jefferies Maintains Buy
Nov 2015 Jefferies Maintains Buy
Nov 2015 Deutsche Bank Maintains Hold

View More Analyst Ratings for KSS
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