Investor Believes Macy's (M) Will Reap Rewards From A Spin-off

Macy's Inc (M) is among many of the retailers still struggling. Starboard Value, an activist hedge fund, believes the retailer can shift its eye on potentially spinning off its real estate holdings to generate profits. The hedge fund recommended in a recent conference, that Macy's real estate was worth $21 billion. This could mean that the stock could be valued as much as $125 instead of $72. The retailer currently owes $7.2 billion in debt.

How can Macy's capitalize in a spin-off? Here are some insights investors should know.

Macy's may reap the rewards from a spin-off by separating its businesses in which the end results in a retail business and a real estate investment trust.

In each case, Macy's has the potential end up with significant profits and at the same time, improve its margins by eliminating its debt. The company has $1.5 billion in cash.

On the retailing end, Macy's could then re-invent itself and profit again. can focus on the shift to mobile and localization to drive consumer revenues and utilize its strategies to improve its omni-channel retail. Many other major retailers have been making huge investments in omnichannel retail technologies which is still being driven by consumer demand. As the space continues to evolve, Macy's can profit, especially from this area.

Saks Incorporated (SKS) and Dillard's Inc. (DDS) are the retailer's top competitors. Macy's competes with both retailers over geographic areas covering most of its stores. The retailer is also faced with stiff competition as discount stores and other shopping mediums like the Internet, catalogs, mobile shopping and television.

Investment Summary

JP Morgan has reiterated their Overweight stance on July 16 for the retailer. The analysts by JP Morgan recently increased their price target from $67 to $76, a 6.73% upside from its last closing price. Deutsche Bank has downgraded their Buy rating to Sell on June 29. The report indicated a decrease in price target from $71 to $63.

Macy's still wants to be at the forefront of technology innovations in the retail space. Macy's stock was trading 3.26% below its 52-week-high as of Friday. The stock traded 29.85% above its 52-week-low. The retailer has a one year stock history price range between $54.84 -- $73.61. Macy's price to earnings ratio is 16.9 versus Services sector average of 19.4. A potential spin-off and strategic focus is a good idea to improve its sales performances.

Published on Jul 31, 2015
By Jennifer Lynn

Copyrighted 2020. Content published with author's permission.

Posted in ...