Macy’s, Inc. (M) Annual Valuation
Macy’s, Inc. owns some great department stores, but how does the company itself look when compared on a fundamental analysis to other companies?  Intelligent Investors must take the time to do fundamental analysis in order to calculate an intrinsic value of a company.  Only through comparing the company’s intrinsic value to the market place can an investor truly get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements and prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Macy’s, Inc. fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Macy’s, Inc. (Macy’s) is a retail organization operating stores and Internet Websites under two brands (Macy’s and Bloomingdale’s) that sell a range of merchandise, including apparel and accessories (men’s, women’s and children’s), cosmetics, home furnishings and other consumer goods in 45 states, the District of Columbia, Guam and Puerto Rico. As of January 28, 2012, the Company’s operations were conducted through Macy’s, macys.com, Bloomingdale’s, bloomingdales.com and Bloomingdale’s Outlet. During the year ended December 31, 2011, the Company opened three new Bloomingdale’s Outlet stores and re-opened one Macy’s store. On February 25, 2011, the Company sold its investment in The Knot, Inc.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 – PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| MG Value | $117.45 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $44.23 |
| Value Based on 0% Growth | $25.93 |
| Market Implied Growth Rate | 4.09% |
| Net Current Asset Value (NCAV) | -$20.20 |
| PEmg | 16.69 |
| Current Ratio | 1.33 |
| PB Ratio | 3.45 |
Balance Sheet – 10/31/2013
| Current Assets | $9,560,000,000 |
| Current Liabilities | $7,186,000,000 |
| Total Debt | $6,732,000,000 |
| Total Assets | $22,446,000,000 |
| Intangible Assets | $4,278,000,000 |
| Total Liabilities | $17,004,000,000 |
| Outstanding Shares | 368,480,000 |
Earnings Per Share
| 2014 (estimate) | $3.85 |
| 2013 | $3.24 |
| 2012 | $2.92 |
| 2011 | $1.98 |
| 2010 | $0.83 |
| 2009 | -$11.40 |
| 2008 | $2.01 |
| 2007 | $1.80 |
| 2006 | $3.16 |
| 2005 | $1.93 |
| 2004 | $1.86 |
Earnings Per Share – ModernGrahamÂ
| 2014 (estimate) | $3.05 |
| 2013 | $1.61 |
| 2012 | $0.28 |
| 2011 | -$1.01 |
| 2010 | -$1.91 |
| 2009 | -$2.35 |
Dividend History
M Dividend data by YCharts
Conclusion:
Macy’s, Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The company’s current ratio is too low, it hasn’t had earnings stability over the ten year period, and the PB ratio is too high for the Defensive Investor.  For the Enterprising Investor, the debt level relative to the current assets is too high.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should seek other opportunities by reviewing companies that pass the ModernGraham requirements.  From strictly a valuation perspective, the company has significantly grown EPSmg from -$2.35 in 2009 to an estimated $3.05 for 2014.  This solid level of growth outpaces the market’s current implied estimate for earnings growth of 4.09%, and the ModernGraham valuation model returns an intrinsic value that is well above the market price; but investors should be very cautious as the company presents a little more risk than is acceptable to Intelligent Investors.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Macy’s, Inc. (M)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a position in Macy’s, Inc. (M) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.
