Macy’s Inc Valuation – January 2019 $M

Company Profile (excerpt from Reuters): Macy’s, Inc., incorporated on December 13, 1985, is an omnichannel retail company operating stores, Websites and mobile applications under various brands, such as Macy’s, Bloomingdale’s and Bluemercury. The Company sells a range of merchandise, including apparel and accessories (men’s, women’s and children’s), cosmetics, home furnishings and other consumer goods. The Company’s subsidiaries provide various support functions to its retail operations on an integrated, company-wide basis. The Company’s bank subsidiary, FDS Bank, provides credit processing, certain collections, customer service and credit marketing services in respect of all credit card accounts that are owned either by Department Stores National Bank (DSNB), a subsidiary of Citibank N.A., or FDS Bank and that constitutes a part of the credit programs of the Company’s retail operations. Macy’s Systems and Technology, Inc. (MST), a subsidiary of the Company, provides operational electronic data processing and management information services to all of the Company’s operations.


Downloadable PDF version of this valuation:

ModernGraham Valuation of M – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,941,872,586 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 88.38% Pass
6. Moderate PEmg Ratio PEmg < 20 7.01 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.42 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.46 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $3.68
MG Growth Estimate 0.29%
MG Value $33.41
Opinion Fairly Valued
MG Grade A-
MG Value based on 3% Growth $53.30
MG Value based on 0% Growth $31.25
Market Implied Growth Rate -0.75%
Current Price $25.76
% of Intrinsic Value 77.11%

Macy’s Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.61 in 2015 to an estimated $3.68 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 0.75% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Macy’s Inc revealed the company was trading below its Graham Number of $39.21. The company pays a dividend of $1.51 per share, for a yield of 5.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 7.01, which was below the industry average of 25.4, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.38.

Macy’s Inc fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.38
Graham Number $39.21
PEmg 7.01
Current Ratio 1.34
PB Ratio 1.42
Current Dividend $1.51
Dividend Yield 5.86%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $8,667,000,000
Total Current Liabilities $6,444,000,000
Long-Term Debt $5,469,000,000
Total Assets $20,361,000,000
Intangible Assets $4,389,000,000
Total Liabilities $14,716,000,000
Shares Outstanding (Diluted Average) 312,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.67
Jan2018 $5.04
Jan2017 $1.99
Jan2016 $3.22
Jan2015 $4.22
Jan2014 $3.86
Jan2013 $3.24
Jan2012 $2.92
Jan2011 $1.98
Jan2010 $0.78
Jan2009 -$11.40
Jan2008 $1.97
Jan2007 $1.81
Jan2006 $3.24
Jan2005 $1.93
Jan2004 $1.86
Jan2003 $2.06
Jan2002 -$0.71
Jan2001 -$0.45
Jan2000 $1.81
Jan1999 $1.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.68
Jan2018 $3.67
Jan2017 $3.10
Jan2016 $3.60
Jan2015 $3.61
Jan2014 $3.05
Jan2013 $1.60
Jan2012 $0.27
Jan2011 -$1.03
Jan2010 -$1.93
Jan2009 -$2.35
Jan2008 $2.17
Jan2007 $2.24
Jan2006 $2.19
Jan2005 $1.43
Jan2004 $1.09
Jan2003 $0.75

Recommended Reading:

Other ModernGraham posts about the company

10 Stocks for Using A Benjamin Graham Value Investing Strategy – May 2018
Macy’s Inc Valuation – April 2018 $M
Macy’s Inc Valuation – July 2016 $M
27 Companies in the Spotlight This Week – 2/14/15
Macy’s Inc. Annual Valuation – 2015 $M

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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