Macy's (M) Upgraded to Neutral at Citi on Valuation

Citi analyst Paul Lejuez upgraded shares of Macy’s (NYSE: M) to Neutral from Sell after the recent selloff in the stock pushed the price below the bank’s $25.00 per share price target.

Despite the upgrade, Lejuez believes Macy’s will continue to face “substantial structural challenges.” On the other hand, the “Sell rating is not warranted” as near-term results are likely to remain solid.

“We believe the stock has reached a level (trading at a 5x P/E our F22E) where the risk/reward is balanced. We model a significant EBIT margin decline in the coming yrs (from 9.7% in F21 to 7.7% in F22 to 4.8% by F26), but free cash flow on our cautious long term estimates (along with its improved balance sheet) drive our $25 DCF-based target price. With the stock trading at a P/E of 5x our F22E (and 3x our F22E EBITDA), the mkt prices in significant concerns/risk, which we view as appropriate given their challenging position in the mkt,” Lejuez said in a client note.

The analyst’s long-term challenges are related to mall-based dept stores.

“For this changing retail environment, we continue to believe M has too many stores and will likely need to close more in the coming yrs,” he added.

Macy’s stock is down over 5% today.

By Senad Karaahmetovic | [email protected]

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