Macy's Shares Are Oversold; Imperial Sees Common Stock Attractive

The common shares of Macy's Inc M have a valuation in the range of $24 to $72, and currently appear attractive, having been oversold on negative headlines, Imperial Capital’s Mary Ross Gilbert said in a report. She does not have a rating on the company, while the price target is at $45.

“Our positive viewpoint is supported by likely adaptation to an evolving retail climate with strong merchandise assortments driving e-commerce growth and a valuable real estate platform,” Gilbert commented.

Bad News Exaggerated

Gilbert believes that the negative media headlines exaggerate:

• The weakness of holiday sales at Macy’s.
• The negative impact of accelerated store closings.
• The threat of the end of bricks-and-mortar retailing.

Rationale

Macy’s shares tumbled 16 percent after the company announced a 2.1 decline in November/December comps for owned/leased basis and 2.7 percent for an owned basis. “While disappointing, we believe the sell-off was an overreaction, creating an attractive buying opportunity,” the analyst stated.

The decision to accelerate store closings is an attempt by Macy’s to adapt faster to the evolving U.S. consumer. “We think potential proceeds from selling the real estate will go toward reducing debt, which will be accretive to the shares, in our view,” Gilbert wrote. She added that Macy’s was facing easy comps as well as lowered expectations, which should allow the company to outperform in FY 2017.