Macy's Poised For 'Parade' Of Beat-And-Raise Quarters, Susquehanna Says In Upgrade

Retailer Macy's Inc M has introduced various initiatives to boost its business that will help lift the stock's multiple, according to Susquehanna Financial Group. 

The Analyst

Susquehanna's Bill Dreher upgraded Macy's from Neutral to Positive with a price target lifted from $25 to $43.

The Thesis

Some Macy's initiatives to drive positive comps include a revamped loyalty program and a focus on bargain shoppers, Dreher said in a note. (See the analyst's track record here.) 

The company's focus on new initiatives will likely generate "significant and unexpectedly strong" operating leverage, which in turn warrants a higher multiple on the stock, the analyst said. 

Macy's stock is trading at 9.x current year earnings, which is already a discount to the 11x to 12x multiple assigned to department stores that are seeing signs of momentum, Dreher said. Susquehanna's $43 price target is is based on a higher 10.5x multiple on expected 2019 EPS of $4.11. The 10.5x multiple should continue moving higher over time as the company's initiatives are "more widely appreciated" by investors, he said. 

Macy's initiatives should result in a "parade" of beat-and-raise earnings reports throughout fiscal 2018, Dreher said. Investors can expect the momentum to continue in 2019, with double-digit percentage EPS growth at a time when the Street is still modeling a year-over-year decline in EPS, the analyst said. 

Price Action

Macy's shares were down 2.6 percent at the time of publication Tuesday.

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