Macy's Is a Definite Buy Under $40

Shares of retailer Macy’s (M) have fallen under $40 for the first time in over a month. Shares are trading near the same levels where I recommended investors to take up a long position. Macy’s has lost over 10% of its value in the last few trading sessions and I believe the stock is undervalued and a definite buy under $40.

The weakness in the retail sector has hurt Macy’s stock, but it still has great upside potential particularly due to the potential of its real estate assets. The company’s real estate assets can unblock great potential for investors.
While Macy’s was not looking for any real estate opportunities last year, it finally looks like the scenario is changing. It looks like Macy’s in moving in the direction of real estate monetization as the company recently a new executive vice president of real estate in a move that falls squarely in line with the top-priority goal to explore strategic real estate options.

Douglas Sesler joined Macy’s after stints at True Square Capital and Bank of America Merrill Lynch in real estate management roles. Last month, Macy’s added real estate heavyweight William Lenehan to its board. Lenehan is the CEO of Four Corners Property Trust which is the real estate investment trust that was spun off from Darden Restaurants. The common link between Macy's and Darden is the presence of Starboard Value behind the scenes. The hedge fund got its way in pressuring Darden to form a REIT.

Apart from the real estate potential, Macy’s is also riding out the slowdown in retail by cutting costs and focusing on its online business. The retailer plans to reduce its SG&A expense by $400 million. Also, finding the perfect balance between online, and brick and mortar stores will be the most beneficial way for Macy’s in the long-run. The company could monetize its real estate assets to fund its online business, making it a good buy.

Moreover, Macy’s is currently trading at roughly 12.6x trailing earnings and has a juicy dividend yield of 3.55. Thus, investors can buy the stock for its multiple headwinds and also enjoy its generous dividend yield while waiting for the company to monetize its real estate assets. The undervaluation and multiple tailwinds make Macy’s a perfect pick in the currently overvalued stock market.
Published on Apr 14, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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