The firm reiterated its $65 price target for the American department store company.
Merrill Lynch said it lowered Macy's rating based on a valuation call and because earnings growth is decelerating.
"We think upward estimate revisions and multiple expansion has played out," said Bank of America/Merrill Lynch analyst Lorraine Hutchinson. "Our flat EBIT growth forecast makes it difficult to argue for multiple expansion above 7x."
Separately, TheStreet Ratings team rates MACY'S INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate MACY'S INC (M) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, increase in net income, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- MACY'S INC has improved earnings per share by 29.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MACY'S INC increased its bottom line by earning $3.90 versus $3.29 in the prior year. This year, the market expects an improvement in earnings ($4.35 versus $3.90).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Multiline Retail industry average. The net income increased by 22.6% when compared to the same quarter one year prior, going from $177.00 million to $217.00 million.
- 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. Compared to other companies in the Multiline Retail industry and the overall market, MACY'S INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- 39.21% is the gross profit margin for MACY'S INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 3.50% is above that of the industry average.
- You can view the full analysis from the report here: M Ratings Report