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Macy's & J.C. Penney: Should You Consider These Retailers?

These are our articles posted on Seeking Alpha. Click "READ MORE" if you would like to read the rest of the articles.

Macy's As Is Offers Significant Upside

Summary

  • Macy’s offers significant value even without a real estate spin-off.
  • I make my main projections using a 3.75% after-tax operating income growth rate and a reinvestment rate of 35.4%.
  • Macy's has an intrinsic value in the range $56-66, even if we more or less ignore the possibility that the company spins off its real estate portfolio.

Macy's real estate spin-off may just be icing on the cake.

In my previous article on Macy's (NYSE:M), I discussed how the separation of M's valuable real estate could create significant value for shareholders. I also mentioned other factors like digital growth and new opportunities in the luxury beauty products market that could drive the company's stock higher. Although Macy's hasn't made anything official with regards to the real estate transactions, the fact that the company has recruited Douglas Sesler as VP for real estate and brought on William Lenehan as a board member, alone, makes me very optimistic. Both Sesler and Lenehan have extensive experience of developing and implementing real estate strategies. These appointments don't make much sense if Macy's wasn't serious about creating shareholder value out of its real estate portfolio... READ MORE



You'll Regret Not Buying J.C. Penney Right Now

Summary

  • On a relative basis, JCP doesn’t look overvalued.
  • I value JCP’s shares using a 5-year DCF model modeling for 2.5% terminal FCF growth rate.
  • JCP’s fair value is $12.01.

In my previous article on J. C. Penney (NYSE:JCP), I talked about how JCP is finally moving in the right direction. Under Marvin Ellison, JCP's strategic framework consists of expanding omnichannel capabilities, increasing revenue per customer and reestablishing and expanding private and exclusive brands. Here I discuss how achieving these sub-targets could drive JCP higher in the future and what might be a good target price for the company's shares.

Priced at roughly $9.66 per share versus a book value per share of $4.27, JCP is trading at a premium to its assets owing to its strengthening balance sheet. On a relative basis, though, JCP certainly isn't the most expensive stock in the department stores industry. Trading for ~2.3X book value, shares look fairly valued compared to the shares of direct rivals including Macy's (NYSE:M) and Kohl's (NYSE:KSS). Furthermore, based on the P/S ratio, JCP is trading at a noticeable discount to industry peers... READ MORE

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