Will Macy's (M) Stock Finally Find Support at $40?

Macy's (M) gapped lower this morning, making a new low for the move down.
By Bruce Kamich ,

NEW YORK (TheStreet) -- The annual Macy's Thanksgiving Day Parade later this month could be a bummer this year unless the price of the stock bottoms out.

Macy's (M) - Get Report peaked in July and turned lower, breaking below the 50-day simple moving average and not looking back. The On-Balance-Volume line turned down in August, confirming the liquidation and the downtrend. A bullish divergence between the lower lows in price and higher momentum readings in August and September produced a very limited bounce. M gapped lower this morning, making a new low for the move down. If this gap is filled fairly soon it could be an exhaustion gap, but it is too soon to say for sure.

This longer-term chart of M shows the rally years and the recent breakdown. With the 40-week moving average pointed down, the On-Balance-Volume line edging lower and no bullish divergences versus the momentum study, M could test next support around $40. $40 acted as resistance in 2012 and could act as support on this decline. We'll check in on Macy's again after Black Friday.

TheStreet Ratings team rates MACY'S INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate MACY'S INC (M) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Multiline Retail industry and the overall market, MACY'S INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • MACY'S INC's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MACY'S INC increased its bottom line by earning $4.27 versus $3.90 in the prior year. This year, the market expects an improvement in earnings ($4.65 versus $4.27).
  • 40.86% is the gross profit margin for MACY'S INC which we consider to be strong. Regardless of M's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.55% trails the industry average.
  • M, with its decline in revenue, underperformed when compared the industry average of 7.4%. Since the same quarter one year prior, revenues slightly dropped by 2.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, M has underperformed the S&P 500 Index, declining 11.81% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • You can view the full analysis from the report here: M

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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