Macy’s (NYSE:M) stock tanked today, but I believe it’s a temporary sell-off that masks a prime bargain for value-focused investors. Despite the shortsightedness of nervous traders (or maybe even because of it), I am bullish on Macy’s stock because the company posted top- and bottom-line quarterly Street beats and perfectly reasonable forward guidance.
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Macy’s is a well-known American chain of retail clothing and accessory stores. While Macy’s does have an online presence, people typically encounter the company through its brick-and-mortar locations in malls and shopping centers.
The firm just released its second-quarter 2023 earnings results, and I won’t claim that the company knocked it out of the park. However, Macy’s delivered results that were as good as anyone should have expected. Besides, the company is now very reasonably valued, and Macy’s didn’t announce any cuts to its generous dividend payouts.
Macy’s Basic Stats Look Awesome
First things first — I can’t ignore Macy’s terrific value-and-yield combo. The company has an absolutely stellar track record of beating analysts’ quarterly EPS forecasts, yet Macy’s GAAP trailing 12-month P/E ratio is absurdly low at 3.4x (versus the sector median P/E ratio of 16.55x).
So far, M stock is already starting to look like a great pick for value seekers. At the same time, income-focused investors should know that Macy’s offers a sweet forward annual dividend yield of over 5% now that the stock has plunged. For comparison’s sake, the sector average dividend yield is around 1%.
However, Macy’s stock traders must be dumping their shares for a good reason, right? I’ll admit, Macy’s second-quarter 2023 results had some sore spots. For example, the company’s sales fell 8% year-over-year to $5.13 billion, and Macy’s adjusted earnings of $0.26 per share represent a 74% year-over-year decline.
On the other hand, it looks like Wall Street fully expected Macy’s sales and EPS to be worse in Q2 2023 than they were in the year-earlier quarter. As it turned out, Macy’s beat the consensus estimates for quarterly sales of $5.07 billion and earnings of $0.14 per share.
The Market Doesn’t Like Macy’s “Cautious Approach”
For the most part, it doesn’t look like the market is punishing Macy’s for its year-over-year sales and EPS declines. Rather, I suspect that jittery short-term stock traders are worried about some commentary from Macy’s and its CEO, Jeff Gennette.
Due to economic pressures (including, I would presume, persistent inflation in some areas, supply-chain disruptions, and high interest rates), Macy’s management acknowledged that it continues to adopt a “cautious view on the consumer.” I find this to be a reasonable assessment from Macy’s management, and it’s not anything that the market wasn’t aware of. Nevertheless, sometimes short-term traders don’t like to hear the truth spoken out loud.
Gennette served up some more honest assessments, stating that Macy’s customers aren’t “converting as easily” and are “becoming more intentional on the allocation of their disposable income with an ongoing shift to services and experiences.” Again, this observation shouldn’t be too shocking during a time of economic challenges.
Besides, Macy’s reiterated its full-year net sales guidance of $22.8 billion to $23.2 billion, as well as the company’s adjusted EPS outlook of $2.70 to $3.20. So, clearly, Macy’s management isn’t ultra-pessimistic about the company’s near-term financial prospects.
Is Macy’s Stock a Buy, According to Analysts?
On TipRanks, M stock comes in as a Hold based on four Buys, six Holds, and two Sell ratings assigned by analysts in the past three months. The average Macy’s stock price target is $17.10, implying 35.1% upside potential.
Conclusion: Should You Consider Macy’s Stock?
You might see some downgrades and price-target reductions for Macy’s stock in the near future, so stay tuned for further developments on that front. Still, the overall picture doesn’t look bleak for Macy’s, especially in light of the company’s quarterly sales and earnings beats.
Sure, not everyone wants to hear the forthright assessments from Macy’s and its CEO. Yet, clear-minded investors, including value hunters and dividend collectors, shouldn’t be afraid of the truth. Therefore, contrarians should definitely consider M stock, and they ought to appreciate Macy’s honesty in an era of relentless buzz and spin.
