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Why Most Analysts Have ‘Hold’ Ratings on Nordstrom

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Dec. 4 2020, Updated 10:53 a.m. ET

YTD movements

On August 2, 2016, Nordstrom’s (JWN) stock price had fallen by 18.7% to $40.74 on a YTD (year-to-date) basis. The company is currently trading below its YTD average price of $46.88. On August 2, Nordstrom was underperforming the S&P 500 Index, which had risen by 7.2% on a YTD basis.

Nordstrom’s department stores peers have also underperformed the S&P 500 Index. The stock prices of Macy’s (M), Dillard’s (DDS), and Kohl’s (KSS) have fallen by 8.5%, 7.2%, and 23.6%, respectively, since the start of 2016. However, JCPenney’s (JCP) stock has risen by 33.1% since the start of 2016. JCPenney’s strategic efforts have been supporting its turnaround.

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Analysts’ recommendations

As of August 2, 17 out of 30 analysts had “hold” recommendations on Nordstrom’s stock. Nine analysts had “buy” recommendations, and four analysts had “sell” recommendations on the stock.

On July 26, Piper Jaffray upgraded Nordstrom from a “neutral” to an “overweight” rating. The company upgraded its price target for Nordstrom’s stock to $53.00 from $45.00. The upgrade resulted from positive indicators from the early days of Nordstrom’s Anniversary Sale.

On July 5, 2015, Miller Tabak upgraded Nordstrom from a “sell” rating to a “hold” rating and raised its price target for the stock from $30.00 to $39.50.

On August 2, the average 12-month price target for Nordstrom’s stock was $41.11. This target price reflected an upside potential of 0.9% from the company’s price of $40.74 on August 2. The Consumer Discretionary Select Sector SPDR ETF (XLY) has 0.2% exposure to Nordstrom.

Dividends and share repurchases

On August 2, Nordstrom’s current dividend yield was 15.5%. The current dividend yields for Macy’s, Dillard’s, and Kohl’s were 4.4%, 0.4%, and 4.9%, respectively.

In fiscal 1Q16, Nordstrom repurchased 1.0 million shares of its common stock for $50 million. Share repurchases are another way of enhancing shareholder returns aside from dividends. Share repurchases enhance earnings per share by bringing down the share count. As of May 2016, Nordstrom had a total of $761 million available under its existing share repurchase program.

We’ll discuss Nordstrom’s valuation in the last part of this series.

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