Will Macy’s Continue Its Dominance?

With shares of Macy’s (NYSE:M) trading around $46, 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:

T = Trends for a Stock’s Movement

Macy’s operates stores and Internet websites in the United States. It operates Macy’s and Bloomingdale’s stores and websites that sell a range of merchandise, including apparel and accessories for men, women, and children; cosmetics; home furnishings; and other consumer goods in 45 states, the District of Columbia, Guam, and Puerto Rico. As trends change, so does fashion and Macy’s is one of the companies that has remained relevant over the last several years. Consumers will continue to explore the latest styles and Macy’s and Bloomingdale’s stores stand ready to provide excellent products. Look for Macy’s to remain a leader in the industry for many years to come.

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T = Technicals on the Stock Chart are Strong

Macy’s stock has seen a consistent uptrend since reaching lows during the 2008 Financial Crisis. The stock is now trading near all-time high prices and sees no signs of slowing just yet. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Macy’s is trading above its rising key averages which signal neutral to bullish price action in the near-term.

M

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Macy’s options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Macy’s Options

26.98%

76%

73%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Macy’s’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Macy’s look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

4.28%

12.50%

21.82%

43.33%

Revenue Growth (Y-O-Y)

7.18%

3.79%

3.01%

4.31%

Earnings Reaction

2.77%

-2.24%

2.72%

-3.69%

Macy’s has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have had mixed feelings about Macy’s’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Macy’s stock done relative to its peers, J.C. Penney (NYSE:JCP), Nordstrom (NYSE:JWN), Dillard’s (NYSE:DDS), and sector?

Macy’s

J.C. Penney

Nordstrom

Dillard’s

Sector

Year-to-Date Return

17.88%

-14.13%

8.58%

1.79%

16.75%

Macy’s has been a relative performance leader, year-to-date.

Conclusion

Macy’s provides highly demanded products to a wide range of consumers across the United States and other countries. The stock has been a strong performer and recent years and looks to be continuing this trend. Earnings and revenue figures have consistently risen but investors have expected a little more from the company. Relative to its peers and sector, Macy’s has been a performance leader, year-to-date. Look for Macy’s to continue to OUTPERFOR

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