Macy's, Inc.

M Details

Macy's, Inc. (NYSE: M) is an omnichannel retail organization and sells a range of merchandise comprising apparel and accessories, cosmetics, home furnishings, and other consumer goods through various stores, websites, and mobile applications under its Macy's, Bloomingdale's, and Bluemercury brands. As of June 30, 2021, M has stores in 43 states, the District of Columbia, Puerto Rico, and Guam. In addition, Bloomingdale's brand operates in Dubai, UAE and Al Zahra, Kuwait, under a license agreement.

Adding Toys"R"Us to the Portfolio: On August 19, 2021, the company partnered with WHP Global, under which the Toys"R"Us brand will be made available online to kids of all ages at macys.com/toysrus and in over 400 Macy's stores nationwide from 2022.

Redeeming USD 1.3 Billion in Secured Notes: On August 03, 2021, M issued a notice for voluntary early redemption of USD 1.3 billion aggregate principal amount of its entire outstanding 8.375% senior secured notes due 2025 on August 17, 2021.

Robust Q2FY21 Results: The company reported a 58.67% increase in net sales to USD 5.65 billion during Q2FY21 (ended July 31, 2021) compared to USD 3.56 billion during Q2FY20 (August 01, 2020), owing to a greater engagement by core and new, younger customers with the addition of new brands and categories. Net income for Q2FY21 amounted to USD 345 million vs. a net loss of USD 431 million reported in Q2FY20. The company exited the quarter with a cash balance of USD 2.14 billion, with a total debt of USD 4.84 billion.

Key Risks: M relies heavily on vendors and suppliers situated outside the US (primarily Asia) to source its merchandise, goods, and services. Any legal, economic, or political disruptions in the supply network could adversely affect the company's operations. Further, it faces intense competition from numerous and varied national and local competitors, such as department, specialty, general merchandise stores, manufacturers' outlets, off-price and discount stores, and online retailers, among others.

Outlook: In its Q2FY21 press release, M stated that it expects its FY21 net sales to range between USD 23.55 billion and USD 23.95 billion, with diluted EPS ranging from USD 3.41 to USD 3.75. The adjusted EBITDA (as a % of sales) is estimated to be 11% - 11.5%.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

M Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: M's stock price has risen 135.95% in the past nine months and is currently trading close to the higher end of the 52-week range of USD 5.57 to USD 22.30. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 68.72. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 17.90. Considering the significant rise in the stock price, we believe the decent business fundamentals are already factored in at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 21.65, up 19.81% as of August 19, 2021, at 12:56 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV.  

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