What Is Engine Capital? 7 Things to Know About the Activist Investor Lifting Kohl’s Stock Today.

Some price action surrounding a major retailer’s stock is leaving investors scratching their heads today. Shares of Kohl’s (NYSE:KSS) stock are trading higher today by 7%. However, today’s news surrounding the stock isn’t exactly positive. Activist investor Engine Capital owns roughly 1% of Kohl’s shares outstanding and recently penned a disapproving letter to Kohl’s management.

Image of Kohl's (KSS) logo on a Kohl's store
Source: Sundry Photography/Shutterstock.com

The letter urged the retailer to either sell itself to another party or split off its digital business. While Kohl’s stock has increased 34% year t0 date (YTD), Engine Capital has been anything but pleased with Kohl’s management and long-term performance. The firm noted that since Michelle Gass became CEO in May 2018, the stock has declined by 10.5%, underperforming the S&P 500 by 90% and company peers by 19.1%.

The activist investor rationalized that assuming online sales of $6.2 billion and a conservative multiple of 2x sales, Kohl’s digital business could be worth $12.4 billion as a standalone entity. That figure is 57% higher than the market capitalization of Kohl’s stock today, which sits at $7.86 billion.

Additionally, Engine Capital stipulates that Kohl’s is trading at a massive discount when compared to its intrinsic value. Through the firm’s own due diligence, it concluded that there are private equity firms that would pay up to $75 per share to acquire Kohl’s. The $75 price figure represents a premium of 43% from Kohl’s current market cap.

In response, a Kohl’s spokesperson issued the following statement:

“The Kohl’s board and management team continuously examine all opportunities for maximizing shareholder value. Our strong performance this year demonstrates that our strategy is gaining traction and driving results. We appreciate the ongoing dialogue we are having with our shareholders and value their input and perspectives.”

So, who exactly is Engine Capital? Let’s take a deeper look into the New York-based hedge fund.

What Is Engine Capital? 7 Things to Know As Kohl’s Stock Rises.

  1. Engine Capital is a “value-oriented special situations fund that invests both actively and passively in companies undergoing change.”
  2. According to Engine Capital’s most recent 13F filing, it manages $369 million, with Dell (NYSE:DELL) as its largest holding.
  3. During Q3, the activist investor increased its holdings in Kohl’s, Dell and PROG Holdings (NYSE:PRG), among others.
  4. Engine Capital has an average holding period of 5.53 quarters, according to WhaleWisdom. The fund first acquired shares of Kohl’s in Q4 of 2020.
  5. Arnaud Ajdler serves as the managing partner of Engine Capital. Ajdler received an M.B.A. from Harvard University and previously worked at Boston Consulting Group and Deutsche Bank (NYSE:DB).
  6. In 2014, Engine Capital pressured fashion retailer Ann Taylor to sell itself. The campaign was successful and Ann Taylor was bought by Ascena Retail Group for $2.15 billion.
  7. Investors are likely reacting positively to the Engine Capital letter because of what it could mean for KSS stock. Spinning off its faster-growing digital business could give investors access to only the assets they want.

On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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