March to Profits with Macy’s (M)

Ride this trade for 20% profits this year

   

If you’ve ever been to New York City on Thanksgiving, you know navigating the streets of Manhattan is nearly impossible due to the Macy’s (NYSE:M) Thanksgiving Day Parade, an 86-year tradition that’s a hallmark of the city’s annual activities. While the Thanksgiving Day Parade may still be nine months away, there’s been another Macy’s parade taking place, and this time it’s a bullish march down Wall Street.

Over the past month, shares of the second-largest U.S. department-store chain have surged nearly 9%, with much of that gain coming as a result of expectations for a strong post-holiday shopping season.

That strength did indeed take place, and on Thursday we learned that U.S. retailers enjoyed their biggest monthly same-store sales gain in more than a year, thanks in large part to shoppers embracing post-holiday sale merchandise. For Macy’s, which also owns luxury-oriented Bloomingdale’s stores along with its namesake stores, same-store sales jumped 11.7% in January, a metric that easily bested analysts’ expectations for an increase of just 6.4% during the month.

2 8 13 macys 286x300 March to Profits with Macy's (M)
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Because Macy’s logged such a strong January, the company gave the Street more bullish news to run with by raising its fourth-quarter adjusted earnings forecast. The company now foresees quarterly earnings coming in between $1.94 and $1.99 per share, which is up from a range of $1.91 to $1.96 per share. For the quarter, Macy’s said its revenue rose 7% to $9.35 billion, which also is well above estimates.

Perhaps even more bullish for the company in the long run is its decision to freeze benefits payable under its existing pension and executive retirement plans. This move is part of an effort to manage the rising cost of benefits, and will likely add nicely to the company’s bottom line beginning next year.

Macy’s is scheduled to report its Q4 earnings results on Feb. 26, but I think jumping on the current M share price parade now will make you 15-20% richer over the next several months.

Recommendation: Buy the stock here at the $40 level, and be prepared to ride it to $48 later this year. Of course, whenever you trade, make sure you protect yourself with a stop at about 8-10% below your buy price.

 

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.


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