Goldman Sachs Upgrades Macy's, Risk-Reward 'Less Skewed To The Downside'

Macy's Inc M's stock has fallen more than 40 percent since Goldman Sachs first initiated coverage of the retailer, but the firm now says the risk-reward profile is "less skewed to the downside."

The Analyst

Goldman Sachs' Alexandra Walvis upgraded Macy's from Sell to Neutral with a price target lowered from $23 to $21.

The Thesis

Macy's continues to face a challenging outlook given its exposure to the fast-changing retail environment and its portfolio of large and mall-based stores, Walvis wrote in the note. Management deserves some credit for initiatives to "reinvigorate" the in-store experience and attract new customers. This may prove to be insufficient as any incremental operating costs will likely offset any short-term traffic improvements.

One of the company's initiatives to spur traffic growth is its off-price concept called Backstage. The analyst said this is likely to send a "confusing message" to customers and vendors related to its value proposition.

Macy's is likely to continue seeing traffic shift from offline to online, which drives deleverage of its existing store base and labor force.

Macy's multiple headwinds are "increasingly well-understood" by investors, but Walvis said any new "good news" would be seen favorably.

Price Action

Macy's stock traded around $21.80 per share at time of publication.

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