David Einhorn And Greenlight Pound The Table On Macy's

Shares of Macy's, Inc. M were trading up almost 3 percent on Tuesday, after David Einhorn’s Greenlight Capital funds disclosed a new long position in the company.

According to the letter, the firm opened a new stake in the struggling retailer, having paid an average price of $45.69 per share.

The REIT Thesis

Earlier in 2015, when the stock traded around $70, an activist investor argued that "the store real estate could be separated to unleash a valuation in excess of $125 per share," the letter said. However, management concluded that a whole-company REIT would limit operational flexibility too much.

The shares ended 2015 trading below $35. At those prices, “the math might make more sense,” Greenlight stated.

While they believe it is not likely for Macy's management team to change the course on its own, it would come as no surprise if a private equity firm partnered with a REIT to buy the company and unlock the value on their own, the note continued.

The No-REIT Thesis

If the REIT thesis does not play out, Greenlight concluded, the stock looks quite cheap at 5x EBITDA, 7x equity free cash flow, and under 9x 2015 EPS, especially given the company's “healthy balance sheet and strong history of share repurchases.”

In fact, the firm's analysts believe “a portion of the recent sales weakness was driven by unseasonably warm weather and a strong dollar impacting tourist business, which should set up for favorable comparisons in 2016.”

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