Time To Stop Selling Macy's, Deutsche Bank Says

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  • Macy's, Inc. M has fallen more than 20 percent since its mid-July high.
  • Deutsche Bank analyst Paul Trussell upgraded the stock from Sell to Hold.
  • Trussell noted that the change is only due to Macy's price decline that brings the valuation in line with Deutsche's estimates.

Despite the upgrade, analyst Paul Trussell said Macy's still faces "significant operational challenges" amidst a strong competitive and discounting market. He argued that not only will Macy's have to compete against other retailers, particularly on the discount side, but it will have to gain share of the consumer wallet back against other areas, like restaurants and technology. That will be no easy task.

Related Link: Macy's CEO Terry Lundgren Explains Why The Company Couldn't Meet Q2 Expectations

Deutsche called the company's second-half guidance "aggressive;" however, Trussell noted that the risk/ reward was balanced at current price, particularly given market expectations from a weak Q2. Also helping the risk/reward balance is the potential REIT, which could unlock $65 per share – or $21 billion. While the likelihood of Macy's pursuing the REIT is "fairly low," the possibility does provide a "floor" to the stock at "current levels."

For now, Deutsche Bank is valuing Macy's based off earnings, with the $61 price target reflecting 12.5x FY 2016 earnings per share. Trussell notes that the firm's EPS estimate is slightly above the Streets, at $4.87 versus $4.81.

Macy's closed at $56.78 on Tuesday, 7 percent below Deutsche Bank's price target. For the year, the stock is down more than 13.5 percent after having gained more than 10 percent through July.

Image Credit: Public Domain

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Posted In: Analyst ColorLong IdeasUpgradesAnalyst RatingsTrading IdeasDeutsche BankPaul Trussell
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