Kohl's shares surge after two banks upgrade the retailer making a comeback

Kohl’s stock rallied in premarket trading Friday after two Wall Street banks upgraded the company’s shares.

Both J.P. Morgan and RBC Capital Markets cited Kohl’s improving same-stores sales (i.e., comp sales) in raising their ratings on the apparel department store.

“We see Kohl’s as a rare large cap ‘value’ idea in consumer with its $75,000 to $80,000 household income core customer demographic and off-mall store fleet well positioned,” J.P. Morgan analyst Matthew Boss wrote to clients. “Kohl’s underlying comp has improved sequentially four straight quarters with operational investments laying the foundation for multi-year low-single-digit same-store-sales.”

Boss raised his Kohl’s price target to $72 from $51, which represents 18 percent upside through the next 12 months.

Shares of Kohl’s have climbed 48 percent over the past 12 months and were set to add to the gains Friday morning.

And while the company’s initiatives could increase foot traffic at Kohl’s stores, the analyst also highlighted its growing relationship with e-commerce giant Amazon.

“Management is encouraged with early indicators from its Amazon partnership, which first launched in September and includes 10 stores with Smart Home and 82 Kohl’s stores taking Amazon returns,” Boss added. “While still in its early days, management is encouraged with customer engagement on both initiatives planning to assess post-Holiday traction to evaluate potential expansion.”

The company also plans to partner with grocery or convenience store retailers to lease excess space left after downsizing approximately 300 stores over the past several years. The initiative seeks to take advantage of unused footage; a food and apparel combination could rival companies with a similar model like Target.

RBC analyst Brian Tunick bumped his rating on Kohl’s to sector perform from underperform, predicting that the stock will finish 2018 around its current level near $60.

“On the back of sequentially improving comps through 2017 which culminated in 7 percent comp for the Holiday period, combined with management’s increased initiatives to optimize store fleet, focus on cost management and improve balance sheet position, we believe Kohl’s is
now better positioned to perform in line with the rest of our coverage,” Tunick wrote Friday.

—CNBC’s Michael Bloom contributed to this report.

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