Macy’s Inc.: Has M Stock Quietly Climbed From the Discount Rack?

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Macy’s, Inc. (M) stock’s loss of 45% made it one of the worst-performing retailers of 2015. In retrospect, M stock was well deserving of those losses last year, with its comparable sales falling 2.5% and the company reportedly losing market share to competing retailers, a rarity for what has been one of the most consistent retailers of the last 20 years.

Macy's Inc.: Has M Stock Quietly Climbed From the Discount Rack?Nevertheless, Macy’s stock has quickly, and somewhat quietly risen from the ashes to regain much of its past swagger, with gains of 27.5% this year.

The big questions, though, are whether these newfound gains will continue and if Macy’s stock is still on the discount rack?

M Stock Shows Life

M stock got a big pop behind the company’s fourth-quarter report and FY2016 guidance. The stock jumped nearly 6% after Macy’s Q4 report in part because it was oversold after a horrific year, but also because its guidance for revenue loss of 2% in FY2016 was better than many feared, and also better than its 3.7% decline in revenue during 2015.

Furthermore, Macy’s disclosed that demand for its real estate assets is high, which might be the biggest reason why M stock has rallied so much. After all, divesting assets, closing stores and generating income from real estate is a big part of Macy’s long-term vision. Thus, if Macy’s is generating high interest for real estate assets, then all the better for the Macy’s stock price.

Will Macy’s Stock Remain a Good Investment Through 2016?

With that said, towards the end of 2015, M stock bottomed at just 9x trailing-12-months earnings. It has since appreciated rapidly to a P/E multiple of 13.5. However, it does not necessarily matter than Macy’s stock multiple has surged 50% from its low, and that is because it had no business ever trading at a P/E ratio of 9.

Regardless of Macy’s short-term problems, the company remains iconic, and has proven over decades that it can and will stand the test of time. At 13.5 times earnings, M stock is still trading slightly below the retail industry’s multiple, and also trades at a rather large discount to the S&P 500.

When you put it all together, yes, Macy’s stock is up big in 2016, but it still trades at a big discount to the S&P 500, and with growth expected to return in 2017 and real estate sales acting as a catalyst for 2016, M stock sure seems like a good long-term bet.

Furthermore, when you incorporate $2 billion left on its share repurchase plan, good for more than 14% of shares outstanding at its current price, and a dividend yield of 3.2%, then you can also incorporate downside safety to the investment mix.

Collectively, Macy’s stock looks like a good investment from this point forward — a stock that still remains on the discount racks, but likely won’t for too long.

As of this writing, Brian Nichols owned shares of M stock.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/macys-m-stock-discount-rack/.

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