What to do with Macy's Shares following Slide After Goldman Analysts Lowers Rating

Last week, Investing Port reported that the stocks of Macy Inc. (M) were among those that performed poorly in the course of 2019. The shares of Macy's Inc. have slipped lower today Monday, December 9 after the analysts at Goldman Sachs lowered their rating on the struggling retailer after it slashed its full-year earnings outlook late last month.

Goldman analyst, Alexandra Walvis reduced her price target from $12, to $5per share, further lowering her rating on Macy's to sell from neutral, describing  what she called "significant additional downside" to the mall-focused retailers' operations that could hamper its ability to cut costs.

Last month, Macy's said its third quarter earnings topped Wallstreet's forecast by 7 cents per share, however noted that the same-store sales declined 3.5%, a decline that lead it to a slash of its current year earnings forecast by 30 cents to a range of $2.57 to $2.77 per share. It has been predicted that full-year sales will likely fall by 2.5% from last year's $24.971 billion total, compared to the company's prior forecast of a flat 2019.

Shares of Macy's were down by 1.32% in the early hours of Monday trading to change hands at $14.96 each, a move that would extend the stock's year-to-date decline to around 50%.

Chief Executive Officer of Macy's Inc., Jeff Gennette said, "Our third-quarter sales were impacted by the late arrival of cold weather, continued soft international tourism and weaker than anticipated performance in lower tier malls, "We also experienced a temporary impact on our e-commerce business due in part to work on the site in preparation for the fourth quarter." 

According to a report by the Street, the weak-looking fourth quarter of Macy's shares was totally different from that of its rival, Nordstrom Inc. Nordstrom improved its full-year outlook last month as its focus on digital shopping offset a slump in full-price product sales. Nordstrom said it doesn't expect tariffs on China-made imports to have a material effect on its fiscal 2020 earnings, and nudged the lower end of its prior guidance 5 cents higher to a range of $3.30 to $3.50 per share, while adding 10 basis points to its EBIT margin forecast. According to reports, net sales are still expected to fall to around 2% from last year, despite coming in at a stronger-than-expected $3.672 billion over the three months ending on November 2.

Currently, questions have risen concerning the sustainability of Macy's dividend. During Macy's two most recent earnings, comments made by the management have led to insinuations that the company is considering slashing its dividend. Even though there are signs that the store giant may slash its dividend in 2020 or 2021, there isn't enough evidence that Macy's actually needs to reduce its dividend.

Following Macy's year-to-date earnings, its operating cash flow has plunged by 60%, decreasing from $429 million to $172 million a year earlier. Meanwhile, its CapEx (including investments in software) is worth $812 million for the first three quarters of fiscal 2019, up from $677 million in the prior-year period.

Investing Port hopes that investors of Macy's Inc. trend with caution, however, there's still some level of confidence that the dividends will not be slashed.  

Should you investing in Macy's?   There are a lot of factors to consider before diving into Macy's stock. The stock has been down for a long time and it's getting crushed by Amazon, Wallmart and Target.  Our recommendation is to take a look at other better-performing stocks like Target, Amazon and Wallmart. 

Note: Investingport does not own Macy and target, and Wal-Mart, but we own Amazon.