Kohl’s gets a boost from Mervyns’ demise

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Shares of department store chain Kohl’s Corp. got a modest lift today, despite the broad market sell-off, after an analyst at Citigroup Inc. raised her rating on the stock to ‘buy’ from ‘hold’ -- a shift attributed in part to the demise of rival chain Mervyns.

The liquidation of Mervyns, announced last week, gives Kohl’s an opportunity to grab more market share in California, analyst Deborah Weinswig wrote in a report.

More than 70% of Mervyns’ remaining 150 stores are in California, where Kohl’s has about 90 stores, Weinswig said.

Kohl’s shares added 54 cents, or 1.7%, to close at $32.08.

Still, even as she upgraded the stock, Weinswig reduced her earnings per share forecast for next year to $2.80 from $3.15, reflecting ‘our more conservative outlook on consumer spending.’

This is likely to be the ongoing story of the retail biz through 2009: tough times for nearly every store chain as consumers retrench, and more failures like Mervyns. But on the other side of the recession valley, the survivors are going to reap big rewards in market share.

Weinswig lauded Kohl’s discipline in maintaining manageable inventories this year, which she said reflected the Menomonee Falls, Wis., company’s ‘appropriately conservative/realistic outlook’ about spending.

A little late, she cut her target price for the stock to $42 from $52. But if the shares can get to her new target in a year, that would be a 31% gain from today’s close.

The main risk with Kohl’s, and with every consumer-related stock, is that the coming pullback in spending could exceed even the most dire current predictions.

Kohl’s, with 1,000 stores nationwide, might well survive a depression. But if you imagine 2009 earnings drastically lower than forecast, the stock would have to be discounted accordingly.