BY MARK SEBASTIAN 

September 14, 2023 

Hey Trader,

I do not think anyone would argue with this statement: The market is bifurcated.

In 2023 we have seen a few big winners…and a lot of “also-rans”…

While much of the hype in this rally has been around NVDA, don’t ignore  Amazon’s move, which is currently at an all-time high.

Another name at an all-time high…not quite an also-ran…but not the Mag 7…Walmart.

These two have been crushing it…at the expense of almost all of the rest of retail.

Online or brick and mortar…if you are not these two names, 2023 has been mostly rough.

But..amongst this rough…is there a diamond?

I want to take a hard look at a name that is synonymous with retail…

Parades and Fireworks are named after this company….its store on 34th Street is one of the most iconic pieces of property in all of New York.

That’s right…I am talking about Macy’s.

The Good

Let’s start with the basic numbers.

Macy’s owns a TON of real estate. Its most valuable of which is its flagship store.

There is a certain amount of value in the company in just the property it owns…even with interest rates as high as they are.

Then there are the fundamental numbers…

The company makes money…they earned over 2 billion EBITA and made 750 million dollars in the last 12 months.

The company produces positive cash flow and has an EPS of 2.59 a share.

That is huge considering M is only 11.37.  This equates to a PE of 2.59.

At this point, I would normally  say, “AH!” They probably have a ton of debt…” But M does not have a ton of debt…

The debt-to-equity ratio is less than 1.

The revenues this company produces are massive: 24 billion in sales producing a rev per share of 87 dollars.

Everything about this company says ‘buy’ from a numbers standpoint…

But is it a buy?

The Bad

M is as much if not more a real estate play than it is a sales play.

Consider the location of their property. They own the store on 34th Street, Old Marshall Fields on State Street in Chicago…and many more properties.

Some estimate their real estate to be worth north of 20 billion dollars.

The market cap is 3.16 billion….why?

Execution.

Revenues in this company are not going up year over year…they are dropping.

Macy’s hit peak revenue in July of 2015.  Online sales are stagnant and the trend for sales is lower.

With rates going up,  the value of the land has dropped…and management is not going to simply kill the company and sell the land.

Take a look at Sears…

The value of the land was not enough to keep the company operational…all that land value went to bondholders and management…

The land may end up being sold in a fire sale as the company tries to keep itself afloat because that is what companies trying to stay alive do.

So what is an investor to do?

The Verdict

At this level, given the real estate value and the sales I would be a buyer.

Sentiment is so bad in M that if they can get in-store and online sales to just stabilize the company is going to 20.

Now I do not want to bury 11,000 dollars buying M stock…it’s a waste of capital…

But, take a look at January 2025 13 calls…they cost 1.80.

If M can pull it together, stabilize, and get sales to just stop diving…those calls are going to pay more than 100% in short order.

Questions about that? Leave a comment below!

Your only option,
Mark Sebastian