Event: Department store extraordinaire Macy’s (NYSE: M) reported stronger-than-expected earnings for the quarter ending Oct. 31 on Wednesday before the market opened. Macy’s said it earned 37 cents per share in the quarter, far outpacing the average estimate of 29 cents per share. Revenues also topped estimates. The big retailer saw $6.08 billion in sales, slightly exceeding an estimate of $6.06 billion. Macy’s raised guidance for the year’s profit to a range of $3.35 to $3.40 per share. Shares of Macy’s are trading slightly higher in early trading on Wednesday.
Analysis: The trading in Macy’s this morning is remarkable. On a very negative day for the market, shares of Macy’s are higher. Macy’s hit the trifecta of beating earnings on the top and bottom line and raising guidance for future profits. The consumer is clearly in control of the economy at the moment. Macy’s strongly believes that spending is sustainable and will grow in the near future. From a valuation perspective, shares of Macy’s are relatively inexpensive. The stock trades for 12 times current fiscal year estimated earnings. Analysts expect 12% profit growth from the current fiscal year to the next. Investors should ride the wave of strong Macy’s earnings. In a stronger market environment, shares might be up 5% or more.
Action: Own Macy’s shares now for a 5%-10% gain in 3-6 months.