Macy’s Stock Price Rises 20% – Time to Buy M Stock

Macy’s stock rose almost 20% yesterday after it reported stellar earnings for the fiscal second quarter. The retailer is now up almost 93% for the year even as larger peers like Walmart are sagging.

This week, we got earnings reports from multiple US retail companies. Apart from Macy’s, Walmart, Home Depot, Lowe’s, and Target have also reported their earnings this week. The earnings were largely positive. However, the tepid July retail sales data released earlier this week dampened sentiments. US retail sales fell more than expected in the month amid the fall in auto sales.

Macy’s earnings

Macy’s second-quarter earnings were better than expected almost across the board. The company reported sales of $5.65 billion in the quarter which were higher than the $5 billion that analysts were expecting. The company’s sales increased almost 59% from the corresponding quarter in 2020. The steep rise is however coming from a low base as the COVID-19 restrictions took a toll on the company’s financial performance in the second quarter of 2020.

Macy’s comparable sales rose 61.2% on an owned basis in the second quarter as compared to the second quarter of 2020. In what looks like an encouraging sign, comparable sales were up 5.8% as compared to the second quarter of 2019. The company’s EPS came in at $1.29 which was way ahead of the 19 cents that analysts were expecting. While most retail companies have posted better than expected earnings, Macy’s fiscal second-quarter performance stands out.

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Earnings beat estimates

“Second quarter results were strong across all three nameplates and surpassed our expectations. Our momentum in the first quarter accelerated in the second quarter as we successfully reengaged core customers and attracted new, younger customers with new brands and categories,” said Macy’s CEO Jeff Gennette.

Macy’s also reinstated its quarterly dividend at 15 cents per share. The company had suspended its dividend last year along with several other US companies whose earnings were hit by the pandemic. Based on yesterday’s closing prices, it would imply a dividend of 2.8% which is over twice that of the S&P 500 and ahead of many peers. The company also reinstated its share repurchase program.

Macy’s raises guidance

Macy’s also raised its guidance for the full year 2021 and now expects sales between $23.55-$23.95 billion in the year which is ahead of the previous guidance of $21.73-$22.23 billion. It also raised the adjusted EPS guidance to $3.41-$3.75 as compared to the previous guidance of $1.71-$2.12. It now expects an adjusted EBITDA margin between 11-11.5% in the year versus the previous guidance of 9-9.5%.

Macy’s also announced that it has partnered with WHP Global to bring back Toys”R”Us to the US market. The company’s customers would be able to shop these online as well through its 400 stores in 2022.

Macy’s stock forecast

Meanwhile, Wall Street analysts don’t see upside in Macy’s stock after the recent surge. Its median target price of $21 is a 2.9% downside over current prices. Of the 17 analysts covering the stock, only one has rated them as a buy while nine rate them as a hold. The remaining seven analysts have a sell rating on the stock.

That said, we could see analysts take a favorable view of M stock after the earnings release. Earlier this month, JPMorgan Chase had raised the stock’s target price to $19 while Telsey Advisory Group listed its from $20 to $21.

M stock technical analysis

M stock is looking bullish on the charts. The stock bounced back sharply from the support near the 50-day and 100-day SMA (simple moving average) which indicates technical strength. The stock also trades above the 200-day SMA. The MACD (moving average convergence divergence) also gives a buy indicator while the 14-day RSI (relative strength index) of 68.5 signals that the stock could be getting near the overbought zone.

M stock trades at an NTM (next-12 months) PE multiple of only 8.9x which is way below other retail companies. The company is a good turnaround candidate. The attractive dividend yield and the Toys”R”Us partnership have made the stock even attractive.

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