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Goldman Sachs Upgrades Macy’s Stock after Its Q1 Results

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Rating upgrade

On May 16, Goldman Sachs upgraded Macy’s (M) stock to a “neutral” from “sell.” Goldman Sachs upgraded its rating for Macy’s stock after Macy’s fiscal 2019 first-quarter earnings release (for the period that ended on May 4), as it sees a more balanced risk-reward profile given the significant decline in the stock’s price. Goldman Sachs lowered its price target to $21 from $23.

Macy’s announced its first-quarter earnings results on May 15. The company’s sales fell 0.7% to $5.50 billion and marginally missed analysts’estimate of $5.51 billion. However, Macy’s adjusted EPS of $0.44 handily beat analysts’ expectation of $0.33.

Macy’s adjusted EPS fell 8.3% in the first quarter due to lower sales and a rise in its expenses. Macy’s continues to expect its fiscal 2019 EPS to be in the range of $3.05–$3.25. Excluding gains from asset sales, the company expects its EPS to be in the range of $2.80–$3.00.

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Analysts’ ratings and price targets

Following Macy’s first-quarter earnings results, Jefferies lowered its price target on Macy’s stock to $24 from $27 on May 16. On the same day, Morgan Stanley cut its price target to $20 from $22, and JPMorgan revised its price target to $25 from $26. UBS now has a price target of $23 compared to $25.

On May 16, Macy’s stock was rated as a “hold” by 11 analysts, a “buy” by three analysts, and a “sell” by four analysts. Macy’s growth initiatives, including the expansion of its off-price Backstage stores and its focus on digital sales, have helped it deliver same-store sales growth for six consecutive quarters. However, uncertain macroeconomic conditions and intense competition from online retailers are likely to affect the company’s performance.

The increase in US tariffs from 10% to 25% on Chinese imports is expected to affect Macy’s furniture business. Macy’s believes that this issue can be mitigated, but it also believes that a potential fourth round of tariffs could negatively affect its private labels and national brands.

On May 16, Macy’s stock was down 27.8% year-to-date. The 12-month average price target of $25.00 for Macy’s stock indicates a potential upside of 16% compared to its closing price of $21.50 on May 16.

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