Jim Cramer: Macy's (M) Stock Is Cheap, But It's Not Target

NEW YORK (TheStreet) -- Shares of Macy's  (M) ticked up 0.44% to $66.23 in pre-market trading on Monday after Jim Cramer was bullish on the stock on his Mad Money show on CNBC on Friday.

Macy's reports first-quarter earnings on Wednesday before the market open, and Cramer noted that the department store chain did not perform well in its most recent quarter. But he expects the company to perform well this time because CEO Terry Lundgren does not like to disappoint.

Despite his positive outlook on Friday, Cramer noted Monday morning that he prefers Target  (TGT) to Macy's for a couple of reasons.

"We prefer Target to Macy's for Action Alerts PLUS because of the higher growth prospects and the big turn that we think CEO Brian Cornell is progressing fabulously with," he said. "We like Macy's [and] think it is cheap, but it is not in the position of a Canada-free Target when it comes to the numbers."

The consensus estimate calls for Macy's to report earnings of 62 cents a share on revenue of $6.32 billion, according to analysts polled by Thomson Reuters.

In the first quarter 2014, Macy's reported earnings of 60 cents a share, which edged analysts' expectations of 59 cents a share. Revenue totaled $6.279 billion, which came up short of the consensus estimate of $6.457 billion.

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 revenue growth, notable return on equity, solid stock price performance, growth in earnings per share and expanding profit margins. We feel its 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:

  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. 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.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 2.1%. Since the same quarter one year prior, revenues slightly increased by 1.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 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 improvement from the most recent quarter was slightly positive. 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 $4.27 versus $3.90 in the prior year. This year, the market expects an improvement in earnings ($4.75 versus $4.27).
  • 40.31% 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.
  • You can view the full analysis from the report here: M Ratings Report

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