On November 17, 2023, Macy's Inc (M, Financial) exhibited a notable daily gain of 5.71%, despite a 3-month loss of 10.69%. With an Earnings Per Share (EPS) of 2.7, investors are questioning whether the stock is significantly undervalued. This article embarks on a valuation analysis journey to uncover the true worth of Macy's Inc, encouraging readers to delve into the financial insights that follow.
Company Introduction
Macy's Inc, a retail giant founded in 1858 and headquartered in New York City, operates approximately 550 Macy's stores, nearly 60 Bloomingdale's locations, and 158 standalone Bluemercury beauty stores. With a robust online presence and international licensing, Macy's has cultivated a diverse revenue stream. Women's apparel, accessories, shoes, cosmetics, and fragrances accounted for 61% of its 2022 sales. Currently, the stock trades at $13.33, significantly below the GF Value of $21.02, suggesting a potential undervaluation that merits a closer examination.
Summarize GF Value
The GF Value is a unique measure of intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment for past performance and growth, and future business estimates. When a stock's price hovers significantly below the GF Value Line, it may indicate an undervalued status with higher future returns. Macy's Inc (M, Financial) currently presents such an opportunity, with its market price substantially lower than the GF Value estimate, hinting at a potentially lucrative long-term investment.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid capital loss. Macy's cash-to-debt ratio of 0.07 places it lower than 86.49% of its industry peers. With a financial strength rating of 5 out of 10 by GuruFocus, Macy's exhibits a fair balance sheet, though investors should consider the potential risks associated with its financial position.
Profitability and Growth
Macy's has maintained profitability for 9 out of the past 10 years, with a revenue of $24.40 billion and an Earnings Per Share (EPS) of $2.7. The company's operating margin of 4.3% outperforms 55.06% of its competitors. With a profitability rank of 7 out of 10, Macy's demonstrates fair profitability. Growth is also a vital component of valuation, and Macy's average annual revenue growth rate of 3.4% is average for its industry. However, its 3-year average EBITDA growth of 13.8% is promising, indicating a competitive edge in growth potential.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) reveals a company's value creation efficiency. Macy's ROIC of 7.16 and WACC of 6.85 suggest that the company is generating value for shareholders. This positive spread between ROIC and WACC is a healthy sign of the company's profitability.
Conclusion
In summary, Macy's Inc (M, Financial) appears to be significantly undervalued based on current market conditions. The company's financial health is stable, and its profitability is sound. When considering growth, Macy's outperforms a significant portion of its industry peers. For a detailed exploration of Macy's financials, interested investors can review the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
