Stock price movement
As of August 4, 2015, Macy’s (M) stock price appreciated by 4.4% to $68.57 compared with the beginning of 2015. Nordstrom’s (JWN) stock price has declined by 2.7% over the same period while Kohl’s (KSS) stock appreciated by 2.7%. JCPenney’s (JCP) stock price has increased by 29.7% since the beginning of 2015.
Macy’s makes up about 1.0% of the portfolio holdings of the Consumer Discretionary Select Sector SPDR ETF (XLY). The XLY ETF has appreciated by 12.1% since the beginning of 2015.
Why the stock surged in July
On July 15, Macy’s stock price surged by 7.9% as activist investor firm Starboard Value purchased a stake in the company. The activist firm believes that Macy’s share price will increase significantly if the department store chain unlocks the value of its real estate. According to Starboard’s CEO Jeffrey Smith, Macy’s real estate is worth $21 billion.
Macy’s has been contemplating several strategies to maximize the value of its real estate. The company has monetized some of its real estate properties over the years. For instance, in July 2015, the company sold its downtown Pittsburgh building to Philadelphia-based Core Realty.
As of August 4, 2015, Macy’s is trading at a forward PE (price-to-earnings) multiple of 13.9x, up 2.5% since the beginning of 2015. Despite a decline in its 1Q15 sales and adjusted earnings, the expansion of Macy’s valuation multiple is supported by the growth prospects of the company. Macy’s is launching its six pilot Macy’s Backstage off-price stores in fall 2015. The company is also expanding into international markets with the planned opening of its stores in Abu Dhabi in 2018.
Peers Nordstrom and Kohl’s are currently trading at forward PE multiples of 19.3x and 12.8x, respectively. Nordstrom’s higher valuation than Macy’s is backed by the rapid expansion of its off-price stores. Macy’s valuation is also lower than the S&P 500 Consumer Discretionary Index, which is trading at a forward PE multiple of 20.9x.
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