What happened
Kohl's (KSS 0.70%) shareholders trounced the S&P 500 on Wednesday as the stock jumped 17% by 3 p.m. EDT compared to a 0.4% drop in the wider market. The rally added to solid gains for owners of the department store retailer. Shares are up 25% so far in 2022 compared to a 10% decline in the wider market.
Wednesday's spike was powered by hopes that the chain is about to receive new bids from companies looking to purchase its business.
Image source: Getty Images.
So what
At least two private equity firms are preparing these bids, according to a Wall Street Journal article. These offers are likely higher than the $9 billion that the company rejected earlier this year as being too low, the report explained, and could value Kohl's at more than $60 per share. For context, the stock was trading at about $54 per share before the rumors began circulating about impending purchase bids.
Kohl's hasn't confirmed or denied the buyout offers, saying only through a spokesperson that the company will evaluate any bids against the prospect of remaining independent .
Now what
There's no guarantee that Kohl's will receive a buyout offer, let alone one that values the company above $9 billion. That's why investors should focus instead on the prospects for the business, which appear solid.
Kohl's recently wrapped up a record fiscal year, with adjusted earnings per share reaching $7.33 compared to its previous high of $5.60. Sales in the holiday period rose 6%, translating into a slight decrease compared to pre-pandemic levels.
Activist investors argue that this sales decline is a sign that Kohl's has the wrong growth strategy. Yet revenue rose for the wider 2021 year, and so it might be too early to make that call. Kohl's continued success along those lines is its surest path toward boosting its shareholders' returns, whether or not it decides to go private.
