Macy’s has been on a big run, doubling from the start of the fourth quarter, fueled by coronavirus vaccine progress. But is Macy’s stock a buy now?
Shares of the iconic department store chain are off record lows reached this spring, as Macy’s (M) reopens stores after the pandemic shut down parts of the global economy. Moreover, Moody’s in December predicted a retail rebound next year, after the pandemic forced some stores into bankruptcy.
But since 2015, the stock has been in a steep downtrend amid the exodus away from malls in favor of online and off-price retailers, raising questions over whether gains are still possible in the age of Amazon (AMZN).
Below, we look into Macy’s chart and company fundamentals, while the stock remains cheap compared to years past.
Macy’s Stock Fundamental Analysis
In generations past, Macy’s helped define what a department store could be. What started as a New York City dry goods shop in the 1850s grew to include Bloomingdale’s and became a holiday beacon, with its own holiday parade (albeit a crowd-less, “television only” event in 2020 with far fewer participants), with stores across the U.S. Post-WWII growth and deregulation propped up the nation’s retail landscape, as an Investor’s Business Daily article from 2017 explained.
But the 2008-09 financial crisis dropped a bomb on the nation’s average, middle-of-the-road department stores, forcing an exodus to luxury retail or chains peddling steep bargains. Online retailers like Amazon (AMZN), meanwhile, remolded shoppers’ habits. Macy’s and other retailers closed stores. The malls they occupied or anchored went dark.
The EPS Rating of Macy’s stock, a scorecard of its profit growth, is a weak 7. Sales have fallen for much of the past four years, occasionally eking out single-digit gains.
Macy’s on Nov. 19 said it lost 19 cents per share during the third quarter, as revenue fell 23% to $3.99 billion. Same-store sales fell 21%. However, none of those figures were as bad as expected.
Digital sales jumped 27% during the quarter. But that was slower than the 53% growth logged in the second quarter. Digital penetration, the company said, had eased to around 38% of same-store sales, as the company reopens its physical stores.
CEO Jeff Gennette noted customers had gotten off to an “early start” to shopping for the holidays — a crucial period for Macy’s and other retailers and one that could look a lot different due to the pandemic.
However, that early start, the company said, pulled forward some shopping demand that would normally take place during the final three months of the year. And management said it expected third-quarter margins to be “slightly stronger” than the margins it would produce in the fourth, due to “digital growth and holiday surcharges from our shipping partners.”
The company has taken steps to move more curbside pickup orders. And it has partnered with the delivery service DoorDash to provide same-day and next-day delivery from more than 500 Macy’s and Bloomingdale’s stores around the U.S.
‘Macy’s Vs. The New Consumer’
Even before the coronavirus drove jobless claims into the millions, Cowen analyst Oliver Chen, in a research note last year, estimated that “at least 20% to 30%” of Macy’s store base might need to be closed to right the ship financially.
And he said that Macy’s stock was contending with “a new shopper that values versatility — mixing and matching brands and clothes — and exceptional value.”
Chen also said that the chain needed to spruce up its women’s apparel section and draw younger shoppers.
He also recommended Macy’s speed up its supply chain to better adapt to current trends, and focus more on mobile and digital-oriented convenience — things like zero-person checkout and more curbside pickup.
While department stores are struggling to adapt to Amazon and a changing retail environment, big-box discounters such as Target (TGT), Costco Wholesale (COST) and Walmart (WMT) have fared better, expanding their e-commerce heft by leveraging their brick-and-mortar presence.
M Stock Technical Analysis
Macy’s stock went on a strong run starting Nov. 9, after Pfizer reported its coronavirus vaccine was largely effective. Moderna (MRNA) followed up with similar results.
The FDA has since cleared both vaccines for emergency use. The more people receive the vaccine, the greater the hope of the economy fully reopening.
Macy’s stock ran up 86% from Nov. 6 to its Dec. 7 short-term high of 12.23, rebounding above its 200-day moving average for the first time since late 2018. That was a 115% bounce from Sept. 30. Shares have pulled back to around 10.10.
The tentative buy point on Macy’s stock is a long way off: 18.67. That’s 10 cents above its January peak.
The relative strength line for the stock has crashed over the past five years. That line, which measures a stock’s performance against the S&P 500, hit a record low just a few months ago.
The Composite Rating for M stock remains dismal at 51 though its Accumulation/Distribution grade of A means institutional investors have been buying up shares.
Last Word On Macy’s Stock
Macy’s stock has largely fallen since 2015, badly lagging the S&P 500. While M stock is working on a base, it has a long climb ahead to the buy point.
Even when the coronavirus pandemic ends, the company’s traditional retail business faces threats of all kinds. A reopened economy could give Macy’s sales a short-term boost. But the secular trend away from malls and toward online shopping seems inexorable.
Bottom line: Macy’s stock is not a buy right now.
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