Has Sandy Offered A Buying Opportunity For Macy’s Stock?

  on December 07 2012 2:17 PM

With shares of Macy’s (NYSE:M) trading at around $38.92 is M an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Macy’s recently released some good news as well as some bad news. The good news is that Macy’s enjoyed its best Thanksgiving weekend ever. It looks like the consumer might be alive and well after all. The bad news is that Hurricane Sandy hit sales hard. Same-store sales were projected to come in at 1.5%, but came in at -.07%. While this might be bad news in the short term, it does present a potential buying opportunity. A lot of money has been made off of storms throughout the years. The damage caused by a storm is often short term, which usually presents a buying opportunity after a company’s stock is knocked down. That doesn’t mean that will be the case here, but it’s possible.

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There is an even bigger storm on the horizon, which goes by the name of Fiscal Cliff. If politicians can’t agree to a deal, then retailers will get hurt badly. Even if a deal is reached, there is danger. It all depends on the details of the deal. That’s why so many people are on the sidelines right now.

Macy’s recently saw a 3.80% increase in revenue for Q3 YoY. This is better than the industry average of 2.3%. Annual earnings for 2013 are also projected to come in at 3.41, which would be a big jump compared to 2012. In addition to that, online sales were up 39.2% in November. Let’s take a look at more important numbers so we can form an educated opinion on where the stock might be headed.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Macy’s barely qualifies for ‘Normal.’ It’s a little on the high side, but there are much weaker situations out there. Macy’s debt-to-equity ratio is also weaker than competitors, J.C. Penney Company (NYSE:JCP) and Target Corporation (NYSE:TGT). In regards to cash vs. long-term debt, there is room for improvement. .

 

Debt-To-Equity

Cash

Long-Term Debt

M

1.25

$1.26 Billion

$6.94 Billion

JCP

.84

$525 Million

$2.94 Billion

TGT

1.14

$1.47 Billion

$18.55 Billion

 

T = Technicals on the Stock Chart Are Average

Macy’s had a great run over the past three years, but the stock has traded sideways over the past three months. It has also performed poorly over the past month.  

 

1 Month

Year-To-Date

1 Year

3 Year

M

-5.92%

22.88%

20.38%

153.70%

JCP

-22.91%

-47.79%

-44.89%

-30.54%

TGT

-1.31%

24.22%

18.57%

44.72%

 

At $38.92, Macy’s is currently trading close to all its averages.

50-Day SMA

39.43

100-Day SMA

38.65

200-Day SMA

38.29

 

E = Earnings and Revenue Are Inconsistent

Revenue and earnings for Macy’s wildly inconsistent over the past five years, but 2012 has seen improvement in both areas.

 

2008

2009

2010

2011

2012

Revenue ($)in billions

26.31

24.89

23.49

25.00

26.40

Diluted EPS ($)

1.97

-11.34

.78

1.98

2.92

 

Quarterly revenue and earnings tell the same story in a relative sense.  

 

10/2011

1/2012

4/2012

7/2012

10/2012

Revenue ($)in billions

5.85

8.72

6.14

6.12

6.08

Diluted EPS ($)

.32

1.75

.43

.67

.36

 

T = Trends Support the Industry

It has recently been reported that household incomes are nearing 2007 highs. Of course, this is most likely the case for the upper-middle class and upper class, but since Macy’s appeals most to the upper-middle class, that’s good news for the company. On the other hand, if the Fiscal Cliff brings on dramatic changes for the overall economy, then all bets are off.

Conclusion

Other than Sandy’s impact, Macy’s has been performing well recently. With a 2.10% yield, a Forward P/E of 10.32, an increase in online sales, and projected earnings growth, Macy’s looks appealing. While it might sound redundant, the Fiscal Cliff is an enormous obstacle for a company like Macy’s. Buying right now could be risky, which is why Macy’s is a WAIT AND SEE.

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