Macy's ranks value buy

After hitting a 52-week high last week, shares next target is the 5-year high.

By Feb 7, 2012 10:29AM

Image Source/Getty ImagesBy Tracey Ryniec
Macy's, Inc. (M) has been on a roll since the Great Recession. Shares of this Zacks #1 Rank (Strong Buy) now have their eye on the 5-year high after hitting a 52-week high last week. Yet there's still plenty of value. Macy's is trading at just 11x forward estimates.

Macy's operates 850 department stores under the brands Macy's and Bloomingdale's in 45 states, the District of Columbia, Guam and Puerto Rico.

It also is an online retailer using the websites and

On Feb 2, Macy's released its monthly sales results for January 2012 as well as its fiscal 2011 sales results.

The fourth quarter was one of the strongest for the company in many years with total sales rising 5.5% to $8.7 billion from $8.3 billion in the year ago period. Same-store sales climbed 5.2%.

For all of fiscal 2011, sales rose 5.6% to $26.4 billion from $25 billion in fiscal 2010. Same-store sales jumped 5.3%.

January sales, however, showed considerable cooling. The company said they were "weaker than anticipated" up just 2.4% on a same-store basis. However, January is also the company's smallest-volume month of the year.

Online sales continued to be hot, making up 1.7% of fourth quarter same-store sales and 1.5% of fiscal 2011 sales. Online sales soared 40% in the fourth quarter compared to a year ago.

Given the strong sales performance in the fourth quarter, Macy's raised its full year EPS guidance to the range of $2.81 to $2.83 from $2.73 to $2.78.

As a result, analysts have been revising estimates as well. We raised our estimate last week, pushing the Fiscal 2011 Zacks Consensus up to $2.82 per share from $2.79 per share.

That is earnings growth of 34% as the company earned just $2.11 per share last year.

And the party is expected to continue into fiscal 2012.

Macy's will likely provide fiscal 2012 guidance when it reports fourth quarter results on Feb 21. Until then, the analysts are anticipating that the company will be bullish.

The fiscal 2012 Zacks Consensus Estimate has climbed to $3.21 per share from $3.15 per share in just the last month. That is further earnings growth of 14%.

Shares are breaking out, but there's still value

Shares broke out to a new 52-week high and are next looking to bust through that 5-year high. Yet the shares still have attractive valuations.

In addition to a forward P/E of just 11, which is under the S&P 500 average of 12.8, Macy's has a price-to-book ratio of 2.6. A P/B under 3.0 usually indicates "value."

The company also has a stellar price-to-sales ratio of just 0.6. A P/S ratio under 1.0 can mean that a company is undervalued.

Macy's also has other solid fundamentals, including a stellar 1-year return on equity (ROE) of 20.7%.

Shareholders are also rewarded with a dividend, currently yielding 2.4%.

The department store was left for dead in the Great Recession. But Macy's has resurrected itself and is poised to give investors another year of double digit earnings growth at a very attractive valuation.

Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.

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