Macy's (M) Stock Trades Up, Here Is Why

Anthony Lee /
2023/12/11 11:14 am EST

What Happened:

Shares of department store chain Macy’s (NYSE:M) jumped 18.2% in the morning session after reports from Reuters that Arkhouse Management and Brigade Capital, an investor group, made a $5.8 billion offer to take the company private. The proposal, submitted on December 1, 2023, values Macy's at $21 per share, representing a 20% premium from the company's closing price of over $17/share on Friday, December 8, 2023. The offer, if accepted, would involve acquiring the Macy's stock that the investor group does not already own. The potential privatization of Macy's could instill confidence in Wall Street, especially amid the ongoing macro uncertainty that has plagued many retailers in recent quarters. This development might also be noteworthy for retail investors evaluating their investment strategies in the sector.

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What is the market telling us:

Macy's's shares are very volatile and over the last year have had 20 moves greater than 5%. But moves this big are very rare even for Macy's and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The previous big move we wrote about was 24 days ago, when the stock gained 5.6% a day after the company reported an impressive "beat and raise" quarter. Third quarter results significantly blew past analysts' EPS expectations, driven in part by same-store sales and revenue beats. Full year guidance was also raised slightly across the board, from same-store sales to revenue to EPS, demonstrating confidence in its holiday season strategy amid macroeconomic challenges. The rally is also benefitting from solid earnings reports from apparel retailers, including Ross Stores and Gap. 

Ross Stores reported third quarter results with revenue outperforming Wall Street's estimates, driven by better-than-expected same-store sales growth and more new store openings. Gross margin also exceeded expectations. Likewise, Gap reported third quarter results that blew past analysts' revenue and EPS expectations, although its revenue declined in absolute terms. These beats were driven by better-than-expected same-store sales performance (analysts forecasted a 7% decline, and Gap posted a 2% decline). 

Moreover, the stock's attractiveness is bolstered by a compelling valuation, with a forward P/E ratio of less than 10x and an appealing dividend yield of nearly 5%. This combination may be enticing for investors looking for value and income opportunities. Additionally, the nearly 12% short interest in Macy's has likely led to short covering, with investors who initially bet against the stock either reducing or abandoning their positions.

Macy's is up 2.8% since the beginning of the year, but at $20.71 per share it is still trading 15.3% below its 52-week high of $24.46 from February 2023. Investors who bought $1,000 worth of Macy's's shares 5 years ago would now be looking at an investment worth $649.65.

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