Global

Dissecting the Numbers for Kohl’s Corporation (KSS) and Superior Energy Services, Inc. (SPN)

Kohl’s Corporation (NYSE:KSS) shares are up more than 16.52% this year and recently increased 3.29% or $2.01 to settle at $63.19. Superior Energy Services, Inc. (NYSE:SPN), on the other hand, is up 20.46% year to date as of 05/15/2018. It currently trades at $11.60 and has returned 4.04% during the past week.

Kohl’s Corporation (NYSE:KSS) and Superior Energy Services, Inc. (NYSE:SPN) are the two most active stocks in the Department Stores industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect KSS to grow earnings at a 8.80% annual rate over the next 5 years.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Kohl’s Corporation (KSS) has an EBITDA margin of 12.61%. This suggests that KSS underlying business is more profitable KSS’s ROI is 10.30% while SPN has a ROI of -6.60%. The interpretation is that KSS’s business generates a higher return on investment than SPN’s.

Cash Flow



Cash is king when it comes to investing. KSS’s free cash flow (“FCF”) per share for the trailing twelve months was +3.63. Comparatively, SPN’s free cash flow per share was -0.59. On a percent-of-sales basis, KSS’s free cash flow was 3.19% while SPN converted -4.86% of its revenues into cash flow. This means that, for a given level of sales, KSS is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. KSS has a current ratio of 2.00 compared to 1.90 for SPN. This means that KSS can more easily cover its most immediate liabilities over the next twelve months. KSS’s debt-to-equity ratio is 0.83 versus a D/E of 1.19 for SPN. SPN is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

KSS trades at a forward P/E of 11.41, a P/B of 1.91, and a P/S of 0.57, compared to a P/B of 1.66, and a P/S of 0.91 for SPN. KSS is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. KSS is currently priced at a -9.42% to its one-year price target of 69.76. Comparatively, SPN is -9.23% relative to its price target of 12.78. This suggests that KSS is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. KSS has a beta of 1.25 and SPN’s beta is 2.08. KSS’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. KSS has a short ratio of 7.77 compared to a short interest of 3.82 for SPN. This implies that the market is currently less bearish on the outlook for SPN.

Summary

Kohl’s Corporation (NYSE:KSS) beats Superior Energy Services, Inc. (NYSE:SPN) on a total of 10 of the 14 factors compared between the two stocks. KSS is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. KSS is more undervalued relative to its price target. Finally, CRK has better sentiment signals based on short interest.

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