Macy’s Stock Up 6% Today – Time to Buy M Stock?

The price of Macy’s stock is climbing 6% this morning in pre-market stock trading action following the release of the firm’s financial results covering the fourth quarter of the 2021 fiscal year as both earnings and sales surpassed analysts’ estimates for the period.

For the three months ended on 30 January, the New York-based retailer reported total sales of $8.67 billion resulting in a 27.8% jump compared to the same period a year ago while also 3.9% higher than the figure reported in Q4 2019 before the pandemic started. The consensus estimate for Macy’s revenues stood at $8.44 billion for the period.

Comparable sables went up 28.3% on a year-on-year basis on the stores owned by the parent company while they also increased 6.6% compared to Q4 2019. Digital sales in the fourth quarter increased 12% on a year-on-year basis and 36% compared to 2019’s quarterly figures.

Digital penetration remained 9% above pre-pandemic levels as a percentage of total revenues but slid 500 basis points compared to Q4 2020.

Gross margins for the period went up to 38.9%, up 9,700 basis points compared to the previous year and 70 basis points compared to Q4 2019. The firm reported $1.25 billion in adjusted EBITDA and $745 million in net income resulting in a 7.5% and 12.7% increase compared to Q4 2019.

GAAP earnings per share for the period advanced 15.6% compared to 2019 and came in significantly above Wall Street’s estimate of $1.99 for the quarter. Moreover, the company estimates that it will produce sales ranging between $24.6 and $24.7 billion in 2022 along with adjusted EPS ranging between $4.13 and $4.52 – this last range was more than 30 cents below the Street’s estimate.

The Board of Directors authorized a 5% increase in Macy’s dividend at $0.1575 per share resulting in a forward dividend yield of 2.5%. Additionally, the Board authorized a new $2 billion share repurchase program.

Overall, this was a strong quarterly report and this is the reason why Macy’s shares are rising this morning.

What could be expected from this retail stock after the release of today’s quarterly report? In this article, I’ll be assessing the price action and fundamentals of Macy’s stock to outline plausible scenarios for the future.

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Macy’s Stock – Technical Analysis

Today’s strong report is pushing the price of Macy’s stock near the upper trendline of the symmetrical triangle shown in the chart above. This formation appeared to have popped up ahead of the release of these results and a break above it could signal the start of a bullish cycle for M stock.

Trading volumes yesterday exceeded the 10-day average by nearly 2 times as Macy’s shares advanced 2% and this could also be the case today. Meanwhile, both the Relative Strength Index and the MACD were in consolidation mode as well but today’s uptick could change that situation.

Macy’s stock was trading 12% above its 200-day simple moving average – a sign of mid-term strength – while the price remains on an uptrend as indicated by the multiple higher lows posted by the stock in the past year or so.

If the price of Macy’s climbs above the $29 threshold, chances are that we could witness a strong rally in the coming weeks. However, the extent to which the stock could climb will largely depend on the evolution of the company’s fundamentals.

It is important to note that the state of the market at the moment favors a bullish outlook for Macy’s as well as capital is rotating toward the sectors that were the most battered by the pandemic as they are progressively recovering on the back of en-masse vaccinations and feasible antiviral treatments for the disease.

Macy’s Stock – Fundamental Analysis

This quarterly report from Macy’s along with the company’s forecast for 2022 and three years from now are emphasizing the firm’s ability to recover from the hit it took during the pandemic.

By 2024, the company expects to produce at least $10 billion in digital sales along with annual revenue growth in the low-single digits. Moreover, digital penetration should account for at least 40% of total sales, meaning that Macy’s expects to produce around $25 billion in revenue by the end of that year.

Gross margins are expected to remain strong in the high 30s while free cash flows should stand between $3.2 and $3.6 billion per year.

Using these forecasted figures and Macy’s market capitalization (including today’s pre-market uptick), the firm is being valued at barely 2.3 times its forecasted cash flows and less than 0.3 times its forecasted sales for 2024. Meanwhile, its forward P/E ratio based on the management’s forecasted adjusted EPS for 2022 stands at 6x.

By the end of this last quarter, Macy’s long-term debt stood at $3.3 billion and capital leases ended at $3.1 billion. Total assets were $17.6 billion including $1.7 billion in cash. This year, the company has to pay $450 million in principal of its 3.875% senior notes while another $185 million will have to be paid in 2023.

Overall, solvency risks remain low for Macy’s and this makes the current valuation quite attractive considering the low multiples at which the company is trading and the management’s upbeat tone in regards to the firm’s outlook and prospects.

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