Will Recent Earnings Help or Hurt Macy’s Stock?

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

Macy’s posted earnings that beat Wall Street’s expectations — however, it came up short on beating the revenue expectation. The revenue miss is a negative sign to investors who seek high growth out of the company. Look for Macy’s to remain a leader in the industry for many years to come.

T = Technicals on the Stock Chart are Strong

Macy’s stock has been surging higher in recent years. The stock is currently digesting gains from a recent run so it may spend some time at current prices. 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 between 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

25.55%

40%

39%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October 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 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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

22.39%

27.91%

4.29%

12.50%

Revenue Growth (Y-O-Y)

-0.85%

3.97%

7.18%

3.79%

Earnings Reaction

-4.00%*

2.48%

2.77%

-2.24%

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

*As of this writing

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

18.73%

-35.60%

11.36%

-6.36%

7.38%

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

Conclusion

Macy’s provides trendy apparel and related products to a wide range of consumers across the United States and other countries. The company recently reported earnings that have disappointed investors a bit. The stock has been surging higher but is now trading sideways as it digests recent news. Over the last four quarters, earnings and revenue figures have been rising, however, investors in the company have had mixed feelings. Relative to its peers and sector, Macy’s has been a year-to-date performance leader. Look for Macy’s to OUTPERFORM.

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