Macy’s stock price target cut to $14 at TD Cowen

On Friday, TD Cowen maintained a Hold rating on Macy’s (NYSE:M) shares but reduced the price target from $16.00 to $14.00. The adjustment was made following an analysis of the company’s recent performance and future outlook. Despite Macy’s earnings per share (EPS) beating expectations by 17%, with $1.80 reported versus the anticipated $1.54, this was attributed to one-time adjustments. The company experienced a decline in owned comparable sales (comps) of 1.1%, which did not meet the expected -0.2%. According to InvestingPro data, Macy’s currently trades at a P/E ratio of 6.43x and offers a substantial dividend yield of 5.52%, making it one of the prominent dividend payers in the retail sector.

The report noted that the operating lease merchandise (OLM) comp increased by 0.6%, while gross margin (GM) and selling, general & administrative expenses (SG&A) were slightly better than Wall Street projections. The gross margin was down 179 basis points compared to the expected 199 basis points, and SG&A increased 103 basis points year-over-year versus the forecasted 238 basis points.

Looking ahead, Macy’s provided a fiscal year 2025 (FY25) EPS guidance that was 7% below the midpoint of analysts’ expectations, suggesting $2.29, and predicted OLM comps would range between -2.0% and -0.5%. The cautious outlook for the first quarter of 2025 (1Q25) includes comps expected to fall between -4.5% and -2.5%. Management is taking a "prudent approach" to the fiscal year due to various macroeconomic uncertainties such as food prices, housing costs, and inflation. InvestingPro analysis reveals the company maintains strong liquidity with a current ratio of 1.43, while its revenue reached $23.01B in the last twelve months.

TD Cowen’s revised price target of $14 is based on the newly introduced FY26 EPS projection of $2.13 and a price-to-earnings (P/E) ratio of 6.5 times. The firm advises staying on the sidelines and continuing to monitor Macy’s progress as the company benefits from additional staffing and modernization of products, stores, and marketing. However, the need for promotional intensity to drive traffic and conversion remains a point of caution for investors. InvestingPro analysis suggests the stock is currently undervalued, with additional metrics and insights available in the comprehensive Pro Research Report, which covers over 1,400 US stocks.

In other recent news, Macy’s reported fourth-quarter earnings that surpassed expectations, with an adjusted earnings per share (EPS) of $1.80, exceeding the anticipated $1.54. The company’s gross margins were slightly above forecasts at 35.7%, and Selling, General & Administrative (SG&A) expenses decreased by 1.0% year-over-year. However, Macy’s sales met forecasts, and the company anticipates flat or negative comparable store sales for fiscal year 2025. Analysts have responded with mixed outlooks; Telsey Advisory Group adjusted its price target to $15, while Citi and JPMorgan both lowered their targets to $14, with JPMorgan also downgrading the stock from Overweight to Neutral. CFRA further reduced its price target to $13, maintaining a Hold rating due to anticipated long-term challenges in the department store sector.

Macy’s has outlined a "Bold New Chapter" strategy that includes closing 150 stores and expanding luxury offerings by 20%. Despite effective expense management, the company’s first-quarter guidance for fiscal year 2025 indicates a slow start, with projected EPS between $0.12 and $0.15 and a decline in same-store sales by 4.5% to 2.5%. Analysts have noted that the retailer is facing broader challenges in the retail sector, including changing consumer habits and increased competition from online channels. As part of its strategy, Macy’s aims to reinvest in high-potential locations and enhance its omni-channel shopping experience.

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