Macy’s, Inc. (M) — With the holiday shopping season approaching, during which retailers make about one-third of their annual sales, retail stocks will likely be the focus of institutional investors. This could be the best choice for investors this season.
Macy’s is in the midst of a $400 million makeover at its flagship store in Manhattan designed to attract luxury customers. It is also employing a strategy it calls “My Macy’s” to tailor merchandise assortments to consumers at different locations.
On Wednesday, the company reported third-quarter earnings of $0.61 per share, easily beating estimates for $0.50. However, revenue of $6.2 billion fell short of the $6.34 billion Wall Street expected.
S&P Capital IQ anticipates expanding operating margins supported by cost reductions and sales growth of private label merchandise. Its analysts estimate earnings will increase to $4.30 per share in fiscal 2015 (ending in January), up from $3.86 in fiscal 2014. And they anticipate $4.80 per share in fiscal 2016.
Capital IQ recently raised its 12-month price target by $6 to $64, based on historical P/E analysis. The consensus median target is $65, with a high estimate of $70.
M stock has been in a well-defined bull channel that started in 2011, and it trades around its 50-day moving average between $58 and $60. On Wednesday, high volume propelled shares from the 50-day moving average, challenging the upper resistance of the bull channel at $63.
Support held on the massive sell-off in October, and the stock formed a double-bottom in October/November that could serve as a platform to propel shares higher.
My trading target for M stock is $66, and my longer-term objective is $70. The company pays an annual dividend of $1.25 per share for a forward yield of 2%.
