Macy’s stock has soared some 300% since effective Covid-19 vaccines were announced in November 2020.
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Department stores may be viewed as some of the stodgier companies within retail, but their stocks have been anything. The shares have seen huge swings since the start of the pandemic, and more could be in store as earnings reports for the holiday season start to roll out in the coming weeks.
Evercore ISI thinks some will win bigger than others. On Wednesday, analyst Omar Saad upgraded Macy’s (ticker: M) to Outperform from In-Line, while maintaining a target of $50 for the stock price.
Macy’s was up 5.4% to $26.79 in morning trading, for a gain of 2.3% year to date.
Saad noted that while Macy’s stock has surged some 300% since effective Covid-19 vaccines were announced in November 2020, it is trading at just five times the per-share earnings Wall Street expects for 2021. He said it’s clear investors are still dismissing the shares, expecting inflationary headwinds and that management will go back to offering the kinds of discounts seen before the pandemic to attract customers
Yet he thinks that assumption is a mistake. “Not only do we see the opportunity for Macy’s to more aggressively leverage its core assets (real estate, web traffic) to create significant incremental equity value from the current depressed valuation, we are observing a culture and strategy shift that is embracing a more data-driven, disciplined approach to managing all aspects of the business,” he wrote.
Saad said that while investors need a strong stomach to invest in the stock now, expectations have dwindled so far that if all goes well, Macy’s could easily surprise on the upside. The company has already “returned to prepandemic sales while generating its healthiest gross margin in years,” he wrote.
The analyst is less enthusiastic about peer Nordstrom (JWN), downgrading the stock to In-Line from Outperform, and lowering his price target by $10, to $25. Nordstrom stock was 1% higher at $22.87 on Wednesday, for a1% year-to-date gain.
“We believe strongly in the company’s local market strategy and the digital ecosystem’s built up around them, but struggle with the fact that the company continues to underperform despite these advantages,” Saad wrote.
Nordstrom stock jumped nearly 50% after Barron’s recommended it in early 2021, although it has since fallen back to earth. Yet it’s still one of our favorite stocks for the year.
For his part, Saad isn’t counting Nordstrom out just yet, writing that he’ll be watching for signs that its digital advantage is finally moving the needle, that inventory is improving at Nordstrom Rack, and that consumers are returning to dressier apparel as the pandemic grinds to an end.
Write to Teresa Rivas at [email protected]
