Macy's Crashed Following Its Troubled Outlook: Are Analysts Bullish?

• Shares of Macy's, Inc. M plummeted to new 52-week lows of $39.75 on Wednesday after the company reported a downbeat third quarter and also lowered its full year outlook.
• Macy's stock hasn't dipped below the $40 per share mark since February 2013.
• With shares trading near a multi-year low, Wall Street's top retailing analysts aren't fully convinced that the stock is an attractive buy.

The question investors are asking on Thursday is if Wall Street's top analysts view the stock as a buy at its depressed levels.

Barclays: Challenges ‘Continued To Grow'

Joan Payson of Barclays commented in a note that Macy's challenges "continued to grow more pronounced" through the fall season, as evident by the reported 3.9 percent decline in comps and a 4.6 percent (or 3.1 percent comparable) rise in inventories which will likely force the company to plan liquidations in the fourth quarter.

Payson said sales declines in the quarter resulted in a margin compression and an 8 percent decline (or 20 percent decline ex-asset sale gains) in its earnings per share. In addition, the analyst noted that Macy's plans to open LensCrafters in 500 stores is the latest move in a series of licensing deals that should be viewed as a "sign of difficulty" with bringing in traditional brand vendors.

Shares remain Underweight rated with a price target lowered to $38 from a previous $47.

Related Link: This Retail Expert's Holiday Outlook Says It's Not About If Consumers Spend, But Where They Will Spend

Credit Suisse: ‘Challenging Times' Moving Forward

Michael Exstein of Credit Suisse commented in a note that Macy reported a "difficult" quarter with top and bottom-line results "well below" an already "tempered" expectation.

Exstein also noted that Macy's inventories level stands at the highest point of anytime since 2006, which will pressure gross margins in the fourth quarter as the company will likely be forced to mark down its merchandise.

Exstein suggested that Macy's results reflects the ongoing "challenging" retail environment as mall anchors are "at a cyclical peak" and continue to "deal with secular changes in consumption." In addition, the retailer could create a "knock on effects" with its peers if it proceeds with large promotional activities in the coming quarter.

However, the analyst argued that he is "encouraged" by Macy's focus on maintaining a "strong" balance sheet which was demonstrated by management's decision to reduce capital spending in 2016 and not pursue an REIT structure. Instead, management said it will focus on "more modest" monetization initiatives around key flagship locations.

Shares remain Outperform rated with a price target lowered to $50 from a previous $68.

Morgan Stanley: Q3 ‘Worse Than Feared,' Q4 ‘Tough Trading Environment'

Kimberly Greenberger of Morgan Stanley commented in a note that Macy's third quarter was "worse than feared" and highlighted by a 5.2 percent sales decline – the seventh consecutive quarter of top-line disappointment.

Greenberger said "lackluster" transactions (-3.6 percent) drove Macy's third-quarter comp shortfall. Nevertheless, there were some "bright spots" in the quarter, including e-commerce, parts of Home, and Active, while handbag sales were also highlighted as being "good" and "far better" than apparel.

Greenberger said Macy's reduced earnings outlook implies near-term challenges could extend well into 2016. Specifically, if "sluggish" traffic and warmer weather remain, the analyst sees the potential for further "meaningful" gross margin pressure.

Macy's also outlined "encouraging" future growth initiatives including expense cuts and real estate monetization. However, operating income stabilization (year-to-date down nearly $530 million versus 2014 levels, excluding asset gains) is needed to "restore investor confidence" moving forward.

Shares remain Equal-weight rated with a price target lowered to $48 from a previous $54.

Related Link: NRF Predicts 3.7% Increase In Holiday Sales This Year, Significantly Higher Than 10-Year Average

Macquarie: ‘We Have A Real Problem'

Laurent Vasilescu of Macquarie Capital commented in a note that "we have a real problem" when a retailer like Macy's says "the retail industry is going through a tough period that we seem to experience something like this every five to seven years."

Vasilescu continued that Macy's may be implying a potential consumer downtown as inventories are up while sales are down. The analyst added that management believes consumers' do indeed have cash to spend on merchandise ahead of the holiday season, but it is a "wait and see" game. However, Macy's also pointed out that a decline in transactions and traffic was seen at both Bloomingdales and the core-Macy's, indicating there is an issue with the broader consumer base and not limited to any income class.

Finally, Vasilescu pointed out that activewear remained "one bright spot" and was "very strong."

Shares remain Outperform rated with a price target lowered to $46 from a previous $70.

Citi: ‘A Little Over-Reaction'

Paul Lejuez of Citi commented in a note that Macy's third-quarter results are a "remainder of the challenges facing mall-based retailers" and that Macy's new comp "paradigm is flat comps at best."

Lejuez continued that investors may have overreacted, particularly to the REIT news "it hoped for" but didn't get. At the same time, management's initiatives, including Bluemercury and the Backstage off-price concept are "too small to move the dial" if successful.

However, Lejuez argued that despite the challenges Macy's faces, the "evaporation" of $2.5 billion in market cap value in one day is "excessive" and the stock should "recover slightly" from its current levels.

Shares remain Neutral rated with a price target lowered to $43 from a previous $48.