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Can Macy’s Stock Keep Up Its Strong Momentum?

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May. 2 2018, Published 12:56 p.m. ET

Stock movement

Macy’s (M) stock has risen 27.8% as of April 27 on a YTD (year-to-date) basis. The department store chain’s stock price has risen 13.3% since the announcement of its fiscal 4Q17 results in February. Macy’s impressed investors by generating growth in fiscal 4Q17 sales after 11 quarters of decline. Its EPS (earnings per share) excluding one-time items grew in fiscal 4Q17 for the second straight quarter.

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Department store stocks

Macy’s stock is ahead of major department store peers on a YTD basis. Stocks of Nordstrom (JWN), Kohl’s (KSS), and JCPenney (JCP) have returned 8.9%, 14.9%, and -0.3%, respectively, since the start of 2018. The S&P 500 Index has fallen 0.1% on a YTD basis as of April 27. The index has been very volatile so far this year for various reasons, including the US-China trade dispute and US military action in Syria.

In 2017, Macy’s stock fell 29.7% and lagged the S&P 500 Index, which rose 19.4%. Persistent weakness in its sales disappointed investors. The growing strength of online retailers such as Amazon (AMZN) has severely impacted traditional brick-and-mortar retailers. However, investors are optimistic since Macy’s sales got back on track in fiscal 4Q17.

Current valuation

As of April 27, Macy’s was trading at a 12-month forward PE (price-to-earnings) ratio of 9.1x, which was lower than the valuations of its department store peers. Nordstrom, Kohl’s and JCPenney were trading at forward PE multiples of 14.9x, 11.7x, and 16.0x, respectively.

This series on Macy’s will look at the company’s strategies to improve its sales. We’ll also discuss expectations for its sales and earnings. Finally, we’ll assess analysts’ expectations for Macy’s stock.

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