Market Overview

RBC Not Adding Macy's To Its Shopping Cart Despite M&A Rumors

Share:
RBC Not Adding Macy's To Its Shopping Cart Despite M&A Rumors

Despite takeout rumors, RBC Capital is not excited on Macy's Inc (NYSE: M) as it expects core business to be increasingly challenged by competitive pressures, while margins also remain depressed by pricing headwinds and costly growth investments.

Analyst Brian Tunick reiterated his Sector Perform rating on Macy’s, which recently reported disappointing fourth-quarter numbers and weak outlook.

Rating's Justification

Tunick is skeptical about Macy’s ongoing initiatives to improve sales and potential M&A as well as real estate opportunities.

“A potential takeout (according to an unconfirmed article in the WSJ) and/or significant monetization of M's real estate pose an interesting setup, however, we believe there are still too many unknowns to get more constructive,” Tunick wrote in a note.

Related Link: Look At How Macy's And Amazon Have Changed Over The Past Decade

Specifically, on the real estate front, the analyst said Macy’s real estate gains will be smaller in the near term unless the company is taken out in a levered buyout. The analyst pointed out that the company has realized only about $750 million from its real estate assets versus estimated valuation of up to $20 billion.

The analyst noted that the help Macy’s got from the momentum in accessories brands, increased tourist spending and outsized e-commerce growth are all shrinking, thereby making growth more challenging and costly.

Tunick also sees increased online penetration and free shipping is expected to more than offset potential merchandise margin upside from inventory management.

Analyst's Bottom Line

“Although we are encouraged that ~43 percent of M’s product sold is private label or exclusives, we view M at a vulnerable spot, as Amazon.com, Inc. (NASDAQ: AMZN)’s intensifying push into apparel more closely targets M’s more core customers,” Tunick added.

Shares of Macy’s closed Wednesday’s trading at $32.36. Tunick has a price target of $35. In Thursday's pre-market session, shares were slightly depressed, down 0.12 percent at $32.32.

Latest Ratings for AMZN

DateFirmActionFromTo
Oct 2019MaintainsMarket Outperform
Oct 2019MaintainsBuy
Oct 2019MaintainsOutperform

View More Analyst Ratings for AMZN
View the Latest Analyst Ratings

Posted-In: Analyst Color M&A News Rumors Price Target Reiteration Analyst Ratings Movers Best of Benzinga

 

Related Articles (AMZN + M)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
ARAVH.C. WainwrightReiterates31.0
QCOMCascendReiterates110.0
KMPHH.C. WainwrightReiterates2.5
HASusquehannaInitiates Coverage On27.0
BFRABenchmarkMaintains18.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

U.S. Dollar Index Trading Lowe, FHFA House Price Index Edges Up

SolarCity Cost Tesla An Earnings Beat, But Bull Arguments Now Stronger Than Bear