Should You Bet on Macy's Turnaround?

In a weak sales environment, many retailers have struggled due to falling revenue. As a result of the declining sales, shares of Macy’s (M) are down over 40% from its 52-week highs. However, it looks like the stock has bottomed and is set to move higher.

I recently recommended buying Macy’s shares a few times. Despite the 10% gains since my recommendations, I think the stock can continue moving higher and is a great pick for long-term investors.

Cutting costs

Macy’s is effectively cutting costs so as to offset the sales slowdown.
The company is streamlining its business, which in turn will position it nicely to benefit from a reversal in sales trend. Macy’s plans to close down nearly 40 of its 770 stores and is also cutting positions across many of its remaining stores.

Improving margins will help Macy’s report strong profit despite the weak environment. Macy’s is also investing in its online business to drive growth and fight off competition from other online retailers. The primary reason why I think Macy’s is a great pick is the company’s real estate assets, which are reportedly worth billions of dollars.

Macy’s is looking to monetize its real estate assets and the company can use the money to improve its best-performing stores as well as its online business. Due to the value of the assets, I am still bullish on the stock and would recommend investors to buy it for the long-term.

Even after the appreciation, Macy’s is trading at 12x trailing earnings and has a good dividend yield of 3.25%. Investors can enjoy the generous dividend while waiting for the stock to turnaround. The potential of its real estate assets, beaten down stock valuation, good dividend yield makes Macy’s a great pick irrespective of the sales environment.

Macy’s cost cutting efforts will save the company a lot of money, whereas its real estate assets will also supplement its existing business. I expect Macy’s online business to grow significantly in the coming months, whereas its top-performing stores should also witness strong traffic.

Macy’s is streamlining its business and I think all the negative news is already baked in its current share price. Going forward, I expect the sales to move higher. The stock is still reasonably given that it has billions in real estate assets. Monetizing those assets can unlock great potential for patient investors, which is why I think Macy’s is a great buy right now.
Published on Mar 14, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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