Will Macy’s Head Higher After Recent Headlines?

With shares of Macy’s (NYSE:M) trading around $55, 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 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.

There’s a saying on Wall Street that bad news is actually good news for the market. Wednesday afternoon, Macy’s proved to be the epitome of this mantra, watching its stock surge more than 6% in after-hours trading on the news that it is slashing 2,500 jobs. Macy’s announced Wednesday afternoon that in an effort to achieve cost savings of $100 million per year starting this year, it is introducing a number of cost savings initiatives. Among the cost reduction strategies are store closings, organizational changes and the laying of off 2,500 employees. “The actions being announced today reinforce our focus on continuous improvement in our M.O.M. strategies (My Macy’s localization, Omnichannel integration and Magic Selling customer engagement) and will help us to maximize the impact of the exceptional talent we enjoy at every level of our organization,” Macy’s chairman, president and CEO Terry Lundgren said in a statement Wednesday afternoon.

T = Technicals on the Stock Chart Are Strong

Macy’s stock has been surging higher in recent years. The stock is currently trading near all-time highs and looks poised to continue. 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

23.09%

0%

0%

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

Put IV Skew

Call IV Skew

February Options

Flat

Average

March Options

Flat

Average

As of Thursday, there is 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 small 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

30.56%

22.39%

27.91%

4.29%

Revenue Growth (Y-O-Y)

3.31%

-0.85%

3.97%

7.18%

Earnings Reaction

9.38%

-4.47%

2.48%

2.77%

Macy’s has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Macy’s’s recent earnings announcements.

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), and Dillard’s (NYSE:DDS) — and sector?

Macy’s

J.C. Penney

Nordstrom

Dillard’s

Sector

Year-to-Date Return

4.49%

-15.6%

-0.92%

-4.33%

-5.09%

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’s stock rose more than 6% in after-hours trading on the news that it is slashing 2,500 jobs. The stock has been surging higher and is currently trading near all-time highs. Over the last four quarters, earnings and revenue figures have been rising, which has left investors pleased about recent earnings announcements. Relative to its peers and sector, Macy’s has been a relative year-to-date performance leader. Look for Macy’s to OUTPERFORM.

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