Kohl's solid quarter makes shares look compelling

Kohl's (KSS) is managing the downturn in consumer spending with remarkable ease. The mid-price department store chain posted a 21% gain in third-quarter net income last week thanks to strong sales. As is usual to see this earnings season, cost cuts helped boost the bottom line, but the retailer also benefited from its expansion of exclusive brands.

Kohl's has a history of getting that value-versus-style proposition just right -- something that bodes well for the stock as frugal consumers become increasingly careful with their discretionary dollars. Indeed, the company appears to be eating some of its competitors' lunches.

"Kohl's continues to gain market share at a strong clip relative to many department stores and specialty retailers, and the company is seeing sales-trend improvement across categories and geographies," writes Mark Miller, an analyst with William Blair & Co., in a note to clients.

The stock currently trades at about a 10% discount to the S&P 500 ($INX) and a 5% discount to its own five-year average, according to Thomson Reuters. That's not a screaming bargain, but it still makes shares rather compelling at these levels. Meanwhile, analysts average price target stands at $65.71, putting the implied upside at 17% in the next 12 months or so.

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