Enough Is Enough On Macy's: Why This Analyst Upgraded Stock To Buy After Sharp Downside

• Shares of Macy's, Inc. M have been plummeting recently. The shares fell more than 19 percent over the past five trading days, and lost more than 36 percent over the past three months.
• After this sharp decline, Northcoast Research’s Managing Director Jeff Stein decided, on Thursday, to upgrade his rating on the stock from Neutral to Buy.
• Betting on management, the expert set a $53 price target, which implies an upside of almost 30 percent from current stock prices.

While Macy’s has been missing estimates in both the earnings and revenue fronts over 2015, the steep decline in the stock price already reflects this. The shares are now trading below historic levels both on P/E and EV/EBITDA on Northcoast’s revised forecasts, Stein noted.

However, he continued, the company has “a forward-thinking management team, solid balance sheet, a consistent record of returning excess cash to shareholders and a track record of addressing problems quickly that have arisen in the past.”

Although near-term earnings visibility is poor, the analyst pointed out that there were several elements contributing to the sluggish sales, including weather and currency headwinds, which should start to normalize over 2016.

Having said this, the firm trimmed its fiscal 2016 and fiscal 2017 EPS forecasts to

$3.64 and $4.05, respectively, from $4.20 and $4.65.

Moreover, the report expounded, management said it would cut expenses by $500 million, net of growth initiatives, by the end of the decade.

Stein mentioned two other initiatives he sees as encouraging: the stepping up of off-price expansion and the company’s plans to monetize real estate.

Overall, he concluded, the stock is now a Buy and could hit $53 within the next twelve months.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.