Is There Hope for Macy's Inc (NYSE:M) Rebound?

September 14, 2017, 11:56 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Macy's Inc (NYSE:M) stock price has declined significantly in the recent past to hit new lows even as many analysts and investors predict the death of brick and mortar retailers. However, Macy’s fundamentals tell a different story as the company continues to pay a 7% dividend and has significant free cash flow.

The retailer also does not have any major debt obligations in the near-term with its main debt obligations being due in 2021. Macy’s current annual operating revenue is pegged at $25.78 billion, while its current annual operating income comes in at $1.315 billion.

Macy’s has strong fundamentals; hence, the stock’s steady decline can be attributed to the changing retail environment where millennials seem to dislike the department store model. This underlying trend has led to declining foot traffic in most retail outlets even as more customers prefer to shop online.

The rise of online retailers such as Amazon.com, Inc. (NASDAQ:AMZN) and Alibaba Group Holding Ltd (NYSE:BABA) has transformed the retail landscape. Other off-price retailers such as Ross Stores, Inc (NASDAQ:ROST) and TJX Companies Inc (NYSE:TJX) also offer stiff competition for the foot traffic targeted by Macy’s retail stores.

Macy’s announced that it would close about 68 stores in 2017 and so far is on track to complete the store closures. However, the company still owns prime retail space in many cities across the United States, which could be the key to unlocking the company’s full potential.

Some analysts have even suggested that Macy’s be treated as a REIT given that the value of its real estate holdings is greater than the company’s entire valuation. Macy’s real estate portfolio is worth about $21 billion, while the company’s market capitalization is currently slightly above $6 billion.

This means that Macy’s should continue focusing on increasing sales and margins through various channels, while exploring ways to unlock the hidden value in its real estate holdings. The question remains whether Macy’s shall rebound soon enough and if now a good time to invest in the company.

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