Macy’s (M) stock closed 17.5% higher on Monday, following reports that rival luxury department store operator Saks Fifth Avenue is taking its e-commerce business public.
Wall Street Journal reported that Saks is planning for a $6 billion IPO (initial public offering) of its dot.com unit. The IPO’s targeted valuation is three times Saks’ March valuation.
In March, HBC, the owner of Saks Fifth Avenue, announced that it planned to split Saks Fifth Avenue’s digital business as a “standalone entity,” and had sold a minority stake in Saks for $500 million to Insight Partners, which valued Saks at $2 billion.
Taking a cue from Saks’ recent move and its expected steep rise in its valuation for an e-commerce unit, investors expect Macy’s to follow a similar strategy and lined up to buy its stock.
It is interesting to note that Macy’s stock has gained nearly 152% this year and has surged about 362% in one year, on the back of the strength in its e-commerce business.
Further, the Wall Street Journal reported that activist shareholder Jana Partners has acquired a stake in the company and has asked Macy’s board to split its fast-growing online unit into a separate entity, which could significantly boost its valuation.
Macy’s digital unit has been a key enabler of its growth. Speaking at the Goldman Sachs’ annual global retailing Conference, its CFO Adrian Mitchell highlighted that it acquired about 40-50% of its new customers through the digital channel in the last two quarters.
Mitchell expects Macy’s digital penetration to increase further, while he expects it to generate $10 billion in digital sales in 2023. I maintain a Bullish view on Macy’s stock.
Taking a note of the ongoing strength in Macy’s digital sales, Oliver Chen of Cowen upgraded it to Buy. His target price of $27 reflects a 4.2% downside potential.
Overall, Wall Street remains sidelined on Macy’s stock, with an analyst rating consensus of Hold, reflecting 4 Buys, 4 Holds, and 4 Sells.
Meanwhile, Macy’s scores a 9 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
The average Macy’s price target of $24.27 implies 14.1% downside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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