Can Macy’s Stock Move Higher?

With shares of Macy’s (NYSE:M) trading around $53, 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.

Martha Stewart Living Omnimedia and Macy’s announced on Thursday that they settled a lawsuit that accused Stewart’s company of violating an exclusivity agreement by selling products at rival chain J.C. Penney. Neither MSLO nor Macy’s disclosed terms of the arrangement. Macy’s said the deal doesn’t affect its ongoing suit against J.C. Penney. The tussle stemmed from Stewart’s 2011 deal to sell home goods in J.C. Penney stores and for the retailer to snap up a nearly 17 percent share of MSLO. At that point, the domestic doyenne’s company had already been selling products at Macy’s for years. Macy’s promptly sued both companies. In October, J.C. Penney said it would sharply scale back the Martha Stewart merchandise featured in its stores, eliminating the Stewart-designed bed, bath, and cookware products to which Macy’s lays claim.The company also said it would sell its stake in MSLO. Earlier, a judge in New York had granted J.C. Penney the right — for now — to sell Stewart items under its Everyday label, which doesn’t bear the tycoon’s name.

T = Technicals on the Stock Chart Are Strong

Macy’s stock has been surging higher in recent years. The stock is currently trading sideways and may need time to consolidate before heading higher. 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 signals 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

25.23%

53%

50%

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

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 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 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 had mixed feelings about Macy’s’s recent earnings announcements.

P = Average 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

-0.56%

-0.78%

-0.45%

0.31%

-1.37%

Macy’s has been an average relative performer, 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 announced Thursday that it had settled a lawsuit that accused Martha Stewart’s company of violating an exclusivity agreement by selling products at rival chain J.C. Penney. The stock has been surging higher but is now trading sideways. 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 an average year-to-date performer. Look for Macy’s to OUTPERFORM.

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