Is Macy’s a Big Mystery?

With shares of Macy’s (NYSE:M) trading at around $42.01, is the company 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

What’s so great about Macy’s? See below:

  • Better-than-expected Q4 results
  • Comparable-stores growth
  • A focus on price optimization
  • Integrated operations
  • Consolidated divisions
  • Effective cost management
  • Successful localization initiatives
  • Strong online sales
  • Expanding profit margins
  • Consistent revenue growth
  • Consistent EPS growth
  • Strong stock performance over the past four years
  • Management expects FY2013 EPS of $3.90 to $3.95

This looks like one of the greatest retail stories ever written, but there’s one problem. Insiders don’t seem to be as confident in future prospects as the investing public. It’s understood that insiders sell for a variety of reasons, but when insider sales go into the hundreds of thousands of shares over a 35-day period, it’s cause for concern. Even if these insiders are just taking profits, it indicates that they feel the stock is fairly valued, not undervalued.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

The chart below compares fundamentals for Macy’s, J.C. Penney Company (NYSE:JCP), and Nordstrom (NYSE:JWN). These three companies differ in size. Macy’s has a market cap of $16.25 billion, J.C. Penney has a market cap of $3.26 billion, and Nordstrom has a market cap of $12.67 billion.

M

JCP

JWN

Trailing   P/E

12.94

N/A

15.28

Forward   P/E

9.46

N/A

12.83

Profit   Margin

4.82%

-7.59%

6.05%

ROE

22.28%

-27.43%

37.99%

Operating   Cash Flow

$2.26 Billion

$10.00 Million

$1.11 Billion

Dividend   Yield

1.90%

N/A

2.20%

Short   Position

2.20%

43.80%

N/A

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Normal   

The debt-to-equity ratio for Macy’s is weaker than the industry average, but it still qualifies as normal.

Debt-To-Equity

Cash

Long-Term Debt

M

1.15

$1.84 Billion

$6.93 Billion

JCP

0.94

$930.00 Million

$2.98 Billion

JWN

1.64

$1.28 Billion

$3.13 Billion

 

T = Technicals on the Stock Chart Are Strong

Macy’s has been a top performer over a three-year time frame. It has also outperformed J.C. Penney and Nordstrom for every time frame listed below.

1 Month

Year-To-Date

1 Year

3 Year

M

3.74%

8.15%

7.90%

96.67%

JCP

-16.17%

-24.76%

-57.91%

-52.24%

JWN

1.24%

2.32%

-0.27%

39.65%

 

At $42.01, Macy’s is trading above all its averages.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!
50-Day   SMA

40.37

100-Day   SMA

39.59

200-Day   SMA

38.54

 

E = Earnings Have Been Impressive               

Revenue and earnings have consistently improved on an annual basis.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

24.89

23.49

25.00

26.40

27.69

Diluted   EPS ($)

-11.34

0.78

1.98

2.92

3.24

 

When we look at the last quarter on a year-over-year basis, we see increases in revenue and earnings.

1/2012

4/2012

7/2012

10/2012

1/2013

Revenue   ($)in   billions

8.72

6.14

6.12

6.08

9.35

Diluted   EPS ($)

1.75

0.43

0.67

0.36

1.83

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Do Not Support the Industry

Brick and mortar retailers currently have to deal with several headwinds, which include competition from long-standing operations, competition from newer online retailers, and extreme sensitivity to economic conditions.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Conclusion

Macy’s has defied the odds thus far. This company doesn’t seem fazed by increased competition. However, consistent and heavy insider selling is rarely a good sign. Furthermore, Macy’s stock was slammed during the financial crisis of 2008-2009. If that type of environment were ever to revisit the market, Macy’s would be one of the last places an investor would want to be. Therefore, Macy’s is somewhat risky.

All factors considered, the positives and negatives even each other out, making Macy’s a WAIT AND SEE.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More Articles About:   , , ,  

More from The Cheat Sheet