What is KSS's Intrinsic value?

Kohls Corp (KSS) Intrinsic Value Analysis

Executive Summary

As of June 7, 2025, Kohls Corp's estimated intrinsic value ranges from $5.71 to $115.53 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $13.24 +51.4%
Discounted Cash Flow (5Y) $9.38 +7.2%
Dividend Discount Model (Multi-Stage) $5.71 -34.8%
Dividend Discount Model (Stable) $6.65 -24.0%
Earnings Power Value $115.53 +1220.3%

Is Kohls Corp (KSS) undervalued or overvalued?

With the current market price at $8.75, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Kohls Corp's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 1.78 2.2
Cost of equity 12.0% 17.2%
Cost of debt 6.7% 9.1%
Tax rate 19.8% 40.7%
Debt/Equity ratio 4.47 4.47
After-tax WACC 6.6% 7.6%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.1% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $16,221 (FY02-2025) to $18,958 (FY02-2035)
  • Net profit margin expansion from 1% to 1%
  • Capital expenditures maintained at approximately 3% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $9 $5,476M 66.7%
10-Year Growth $13 $5,906M 51.7%
5-Year EBITDA $3 $4,811M 62.1%
10-Year EBITDA $8 $5,367M 46.8%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 149.6%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 14.6%
  • Long-term growth rate: 0.5%
  • Fair value: $5.71 (-34.8% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 17.2% (Low) to 12.0% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $4 to $9
  • Selected fair value: $6.65 (-24.0% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $1,217M
Discount Rate (WACC) 7.6% - 6.6%
Enterprise Value $16,113M - $18,472M
Net Debt $4,432M
Equity Value $11,681M - $14,040M
Outstanding Shares 111M
Fair Value $105 - $126
Selected Fair Value $115.53

Key Financial Metrics

Metric Value
Market Capitalization $974M
Enterprise Value $5406M
Trailing P/E 8.05
Forward P/E 12.25
Trailing EV/EBITDA 4.65
Current Dividend Yield 1858.22%
Dividend Growth Rate (5Y) 19.74%
Debt-to-Equity Ratio 4.47

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $3.97
Discounted Cash Flow (5Y) 25% $2.35
Dividend Discount Model (Multi-Stage) 20% $1.14
Dividend Discount Model (Stable) 15% $1.00
Earnings Power Value 10% $11.55
Weighted Average 100% $20.01

Investment Conclusion

Based on our comprehensive valuation analysis, Kohls Corp's weighted average intrinsic value is $20.01, which is approximately 128.7% above the current market price of $8.75.

Key investment considerations:

  • Strong projected earnings growth (1% to 1% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 19.74%

Given these factors, we believe Kohls Corp is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.