(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Macy's stock soared through the first eight months of the year, posting a 60% gain. But the shares have fallen 24% since August, and now options traders see it falling another 13% from its current price of $32.40. Technical analysis also suggest that the stock may fall in the coming weeks.
The bearish sentiment comes ahead of what analysts say will be a terrible fiscal third quarter as earnings plunge. The decline highlights the continuing revenue and earnings challenges Macy's faces as the entire retail industry restructures in the face of relentless competition from internet retailers.
Option Betting Implies A 13% Decline
The options due to expire on November 16 have seen a more than ten-fold increase in the volume of open puts at the $30 and $29 strike price. The puts at the $29 strike price suggest that Macy's stock may fall to $28.15. And the puts at the $32 strike price heavily outweigh the calls by a 20 to 1.
The technical chart is also bearish and implies the stock may be on the verge of a sharp decline should it fall below technical support around $31.85. If that happens, it may result in the stock falling to its next support level at $28.05. The relative strength (RSI) has also been trending lower since June, suggesting that momentum continues to leave the stock.
One reason for the negative sentiment is surely the darkening outlook for earnings. Analysts estimate the company will see earnings plunge by 37% to $0.15 per share in the third quarter. Revenue is expected to rise by 2% to $5.4 billion. Analysts have been reducing those estimates over the past three months.
The forecasts for 2020 and 2021 do not get any better. Earnings are forecast to fall by 12% and 5% respectively. Meanwhile, revenue is expected to remain unchanged through 2021.
Macy's will continue to face major headwinds as many of its traditional customers shop more online. That means Macy's management will be under pressure to show investors it is putting itself in a better position to succeed longterm when it reports third-quarter results. If not, the stock is likely to continue to grind lower in the weeks and months ahead.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.