This week’s note includes our comments on earnings from Kohl’s (KSS). Macy’s (M) and Duluth Holdings’ (DLTH) report on June 1. Please note that the monthly edition of the Cabot Turnaround Letter will be published on Wednesday, May 31, and the Catalyst Report will be published on Friday, June 2.
Ratings Changes:
On Wednesday, we moved shares of Ironwood Pharmaceuticals (IRWD) from Buy to Sell following news of its deal to acquire Vectiv Bio Holding AG (VECT) for about $1.0 billion, net, in an all-cash transaction.
Earnings Updates:
Kohl’s Corporation (KSS) – Investors see Kohl’s as a broken company left behind by time, trends and technology, with unsettled leadership, further pressured by bloated inventory, a possible recession, and rising labor and goods costs. Major changes, however, are underway, led by a refreshed board and new CEO (Tom Kingsbury). Kingsbury is a proven operator whose mandate and expertise is to restore and upgrade rigor and discipline in the company’s operational performance. The company’s profits and free cash flow, while weakened, are resilient. The debt burden is reasonable but being trimmed further. While the turnaround carries risks, the deeply undervalued shares provide a margin for safety.
The company reported a decent quarter, with earnings that were much better than dour investor expectations, driving the shares higher in a tough day for the stock market. Margins expanded, the balance sheet (debt and inventory) incrementally improved, free cash flow was half the size of the year-ago outflow, and management reiterated its full-year outlook. The quarter is an encouraging start to Kingsbury’s turnaround efforts.
In the quarter, revenues fell 3% and comp.-store sales fell 4% but were in-line with estimates. Adjusted earnings of $0.13/share rose 18% from a year ago and were sharply higher than estimates for a loss of $(0.44). Adjusted EBITDA of $286 million rose 1% from a year ago but was 30% above estimates.
Friday, May 26, 2023 Subscribers-Only Podcast:
Covering recent news and analysis for our portfolio companies and other topics relevant to value/contrarian investors.
Today’s podcast is about 7 minutes and covers:
- Comments on earnings from recommended companies
- Comments on other recommended stocks
- Walgreens Boots Alliance (WBA) – More bad news.
- Elsewhere in the market:
- Interesting memo from Howard Marks, head of Oaktree Capital.
- How the Hollywood writers’ strike is a gift to streaming companies.
Please know that I personally own shares of all Cabot Turnaround Letter recommended stocks, including the stocks mentioned in this note.
| Market Cap | Recommendation | Symbol | Rec. Issue | Price at Rec. | 5/24/23 | Current Yield | Rating and Price Target |
| Small cap | Gannett Company | GCI | Aug 2017 | 9.22 | 2.16 | - | Buy (9) |
| Small cap | Duluth Holdings | DLTH | Feb 2020 | 8.68 | 5.91 | - | Buy (20) |
| Small cap | Dril-Quip | DRQ | May 2021 | 28.28 | 24.23 | - | Buy (44) |
| Mid cap | Mattel | MAT | May 2015 | 28.43 | 18.25 | - | Buy (38) |
| Mid cap | Adient plc | ADNT | Oct 2018 | 39.77 | 34.77 | - | Buy (55) |
| Mid cap | Xerox Holdings | XRX | Dec 2020 | 21.91 | 14.31 | 7.0% | Buy (33) |
| Mid cap | Ironwood Pharmaceuticals | IRWD | Jan 2021 | 12.02 | 10.81 | - | SELL |
| Mid cap | Viatris | VTRS | Feb 2021 | 17.43 | 9.03 | 5.3% | Buy (26) |
| Mid cap | TreeHouse Foods | THS | Oct 2021 | 39.43 | 48.96 | - | Buy (60) |
| Mid cap | Kaman Corporation | KAMN | Nov 2021 | 37.41 | 22.37 | 3.6% | Buy (57) |
| Mid cap | The Western Union Co. | WU | Dec 2021 | 16.40 | 11.79 | 8.0% | Buy (25) |
| Mid cap | Brookfield Re | BNRE | Jan 2022 | 61.32 | 30.83 | 1.8% | Buy (93) |
| Mid cap | Polaris | PII | Feb 2022 | 105.78 | 104.82 | - | Buy (160) |
| Mid cap | Goodyear Tire & Rubber | GT | Mar 2022 | 16.01 | 13.83 | - | Buy (24.50) |
| Mid cap | M/I Homes | MHO | May 2022 | 44.28 | 69.55 | - | SELL |
| Mid cap | Janus Henderson Group | JHG | Jun 2022 | 27.17 | 25.55 | 6.1% | Buy (67) |
| Mid cap | ESAB Corp | ESAB | Jul 2022 | 45.64 | 58.79 | 1.6% | Buy (68) |
| Mid cap | Six Flags Entertainment | SIX | Dec 2022 | 22.60 | 25.41 | - | Buy (35) |
| Mid cap | Kohl’s Corporation | KSS | Mar 2023 | 32.43 | 20.72 | 9.7% | Buy (50) |
| Mid cap | First Horizon Corp | FHN | Apr 2023 | 16.76 | 11.09 | 5.4% | Buy (24) |
| Mid cap | Frontier Group Holdings | ULCC | Apr 2023 | 9.49 | 7.88 | - | Buy (15) |
| Large cap | General Electric | GE | Jul 2007 | 304.96 | 100.98 | 0.3% | Buy (160) |
| Large cap | Nokia Corporation | NOK | Mar 2015 | 8.02 | 3.94 | 2.3% | Buy (12) |
| Large cap | Macy’s | M | Jul 2016 | 33.61 | 15.18 | 4.4% | Buy (25) |
| Large cap | Toshiba Corporation | TOSYY | Nov 2017 | 14.49 | 15.89 | 6.5% | Buy (28) |
| Large cap | Holcim Ltd. | HCMLY | Apr 2018 | 10.92 | 12.44 | 3.5% | Buy (16) |
| Large cap | Newell Brands | NWL | Jun 2018 | 24.78 | 8.71 | 3.2% | Buy (39) |
| Large cap | Vodafone Group plc | VOD | Dec 2018 | 21.24 | 10.20 | 10.0% | Buy (32) |
| Large cap | Molson Coors | TAP | Jul 2019 | 54.96 | 60.91 | 2.5% | Buy (69) |
| Large cap | Berkshire Hathaway | BRK.B | Apr 2020 | 183.18 | 320.20 | - | HOLD |
| Large cap | Wells Fargo & Company | WFC | Jun 2020 | 27.22 | 40.87 | 2.9% | Buy (64) |
| Large cap | Western Digital Corporation | WDC | Oct 2020 | 38.47 | 37.23 | - | Buy (78) |
| Large cap | Elanco Animal Health | ELAN | Apr 2021 | 27.85 | 8.40 | - | Buy (44) |
| Large cap | Walgreens Boots Alliance | WBA | Aug 2021 | 46.53 | 30.79 | 6.2% | Buy (70) |
| Large cap | Volkswagen AG | VWAGY | Aug 2022 | 19.76 | 15.86 | 5.8% | Buy (70) |
| Large cap | Warner Bros Discovery | WBD | Sep 2022 | 13.13 | 11.66 | - | Buy (20) |
| Large cap | Capital One Financial | COF | Nov 2022 | 96.25 | 99.49 | 2.4% | Buy (150) |
| Large cap | Bayer AG | BAYRY | Feb 2023 | 15.41 | 14.49 | 3.7% | Buy (24) |
Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every Rated recommendation. The chief analyst may purchase securities discussed in the “Purchase Recommendation” section or sell securities discussed in the “Sell Recommendation” section but not before the fourth day after the recommendation has been emailed to subscribers. However, the chief analyst may purchase or sell securities mentioned in other parts of the Cabot Turnaround Letter at any time. Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at bruce@cabotwealth.com or to our friendly customer support team at support@cabotwealth.com. Due to the time and space limits we may not be able to cover every topic, but we will work to cover as much as possible or respond by email.
