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Buy Macy's (M) Stock Ahead of Q3 & $1 Trillion Holiday Shopping Season?

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Shares of Macy's (M - Free Report) have climbed nearly 15% over the last month as the broader market slipped in a sign that investors might expect big things from the department store giant’s Q3 financial results. Let’s take a look at some of Macy’s key estimates to help understand if M stock might be a buy ahead of earnings and what looks to be a booming holiday shopping period.

Quick Overview

Macy’s has revamped its business and boosted online sales. The company also posted its third-straight quarter of comparable store sales growth in Q2.

The retailer seems to have regained some strength at a time when many thought the likes of Amazon (AMZN - Free Report) and other online giants would greatly harm traditional brick-and-mortar businesses. Investors should also remember that although we are waiting on Macy’s third-quarter earnings results, we are in the midst of the vital fourth quarter shopping season.

Looking ahead, the holiday shopping period is expected to surpass the $1 trillion mark for the first time, according to eMarketer. This would mark a 5.8% jump from 2017 and represent the strongest holiday spending growth since 2011.

Price Movement 

We can see that Macy’s stock has dramatically underperformed its industry over the last five years. M stock’s 20% decline also looks miserable compared to the S&P 500’s 62% surge.

Investors then decided to buy the dip on the back of some signs of a possible revival over the last year. In fact, shares of M have skyrocketed nearly 90% in the past 52 weeks. Plus, shares of Macy’s closed regular trading Friday at $37.80 despite its recent positive. This marked a nearly 10% downturn from its 52-week high of $41.99 per share.

 

Valuation

Moving on, M stock is currently trading at 10.5X forward 12-month Zacks Consensus EPS estimates, which marks a discount compared to its industry’s 13.4X and the S&P 500’s 16.8X.

Macy’s stock has traded as high as 11.6X over the last year and as low as 7.1X. Jumping back even further we can see that M’s valuation picture is hardly stretched that the moment.

 

Q3 Outlook

Looking ahead, our current Zacks Consensus Estimate is calling for Macy’s third-quarter revenues to pop by 2.99% to reach $5.44 billion. Plus, Macy’s Q3 comparable store sales are projected to climb 2.2%, based on our current NFM estimates. This, however, comes after comps fell 3.6% in the year-ago quarter. The department store’s full-year revenues are projected to climb 1.9% to $25.31 billion.

Meanwhile, the firm’s adjusted quarterly earnings are projected to plummet 43% to hit $0.13 per share. The company’s full-year earnings are expected to climb 6.37%.

Bottom Line

Macy’s is currently a Zacks Rank #3 (Hold) that has topped our quarterly earnings estimates in eight out of the last 10 periods. With that said,  Macy’s has seen zero earnings estimate revision activity over the last 90 days. Therefore, it seems that Macy’s stock might be one to stay away from based on its Q3 earnings outlook.

Macy’s is scheduled to report its Q3 financial results before the market opens on Wednesday, November 14. Fellow department stores J. C. Penney (JCP - Free Report) and Nordstrom (JWN - Free Report) are set to report their quarterly financial results on Thursday.

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