Macy’s is the typical brick and mortar store that has been hurting for the past few years due to the increased competition from online retailers, such as Amazon. In 2020, Macy’s operated 839 department stores, as well as Bloomingdale outlet units and small specialty units in U.S., Guam, and Puerto Rico. However, due to the pandemic, Macy’s had to shut down its stores, which impacted the company’s business. Needless to say, brick and mortar stores are disliked by investors since such stores tend to operate on razor thin margins. This week, I fundamentally analyze Macy’s stock. I review Macy’s key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account Trailing Twelve Month’s (TTM) free cash flow of $949 million figure, a 3% growth rate of FCF (growth for the next 10 years), 10% discount rate, 1% long term growth rate (growth from 10 year mark to perpetuity), 311 million shares outstanding, and $4,852 million of long term debt, the DCF analysis yields us an intrinsic value of $22.65 per share. Using the current stock price of about $10.50 per share, and taking into the shares outstanding and future projects of free cash flows, we get the expected rate of return of 10.6%.
1:04 Key Ratios Analysis
14:31 Discounted Cash Flow Analysis / Intrinsic Value
16:33 Expected Rate of Return Calculation
17:35 Summary / Conclusion
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Macy’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Company overview: Macy’s is an American department store chain founded in 1858 by Rowland Hussey Macy. It became a division of the Cincinnati-based Federated Department Stores in 1994, through which it is affiliated with the Bloomingdale’s department store chain; the holding company was renamed Macy’s, Inc. in 2007.
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