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We have maintained our long-term Neutral recommendation on Macy’s Inc. (M - Analyst Report) with a target price of $43.00, following the company’s fourth-quarter fiscal 2012 results.

Why the Reiteration?

Macy’s is one such company that has performed fairly well during 2012. The company has been taking prudent steps to augment sales, profitability and cash flows. These include integration of operations, consolidation of divisions and customer-centric localization initiatives. To help drive traffic, Macy’s continues to focus on price optimization, inventory management and merchandise planning.

These measures facilitate the company to deliver better-than-expected results, which is evident from the fact that Macy’s has beaten the Zacks Consensus Estimates for 11 straight quarters by an average of 38.5%.

During the recently concluded quarter, Macy’s posted quarterly earnings of $2.05 per share that surpassed the Zacks Consensus Estimate of $1.98, and surged 20.6% from $1.70 earned in the prior-year quarter.

Moreover, total sales grew 7.2% year over year to $9,350 million and came ahead of the Zacks Consensus Estimate of $9,327 million. Comparable-store sales for the quarter climbed 3.9%.

Going forward, Macy’s projects fiscal 2013 earnings between $3.90 and $3.95. Moreover, comparable-store sales are expected to grow by 3.5%.

Given the company’s strong performance and healthy guidance, we maintain a Zacks Rank #2 (Buy) on this stock in the near term. However, in the long run, sluggish economic recovery and erratic consumer behavior still remain causes of concern.

Moreover, increased competition and the company’s high debt-to-capitalization ratio may limit the upside potential of this stock.   

Other Stocks to Consider

Besides Macy’s, other stocks worth considering in the non-food retail, wholesale sector include Express Inc. (EXPR - Snapshot Report), which holds a Zacks Rank #1 (Strong Buy) and is expected to continue with its upbeat performance. Other stocks that should be merited include Ralph Lauren Corporation (RL - Analyst Report) and Gap Inc. (GPS - Analyst Report), both of which carry a Zacks Rank #2 (Buy).

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