Bank Of America Downgrades Macy's

Bank of America downgraded Macy’s, Inc. M Tuesday from Buy to Neutral and maintained its $65 price target.

Analyst Lorraine Hutchinson believed her “thesis around upward estimate revisions and multiple expansion has played out. Earnings growth has slowed to 8 percent from a 30 percent F2010-13 CAGR as sales growth decelerates off a high base and EBITDA margin nears the 14 percent target.”

“The multiple has expanded from 4.6x to 6.8x EV/EBITDA since late 2010...Macy’s is a market share gainer with strong FCF and numerous programs in place to continue its sales outperformance. However, our flat EBIT growth forecast makes it difficult to argue for multiple expansion above 7x,” according to Hutchinson.

The analyst report concluded that Macy’s is expected “to continue to generate substantial free cash flow given its solid earnings and stable capex requirements.

“Our forecast implies a 7.4 percent 2015 free cash flow yield, which is well above the 4.5 percent average for our coverage universe and in line with department store peers. We are modelling $1.4bn in annual share buybacks in F2015 and F2016, which drives 700bp of our 8 percent EPS growth estimate.”

Macy’s traded at $61.00 in the premarket, down 0.99 percent.