(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Macy's Inc.'s (M) stock has plunged by more than 16% since reporting quarterly results in August. Now shares may fall even further based on technical analysis, by as much as 9%, from its current price of about $35.15. Should that happen, the stock would enter a bear market, with the shares down by 24% from their high of around $42.
Trouble for the stock began when it reported better than expected fiscal second-quarter results, but expectations of higher costs in the second half of the year sent shares plunging. As a result, analysts have cut their earnings forecast for the coming quarter and the full year. (For more, see also: Macy's Sell-Off Only a 'Temporary Setback': CFRA.)
Technical indicators suggest the recent move lower will continue. The shares fell below a long-term uptrend in late August, first formed in November of 2017. Now the stock appears it is heading to a level of technical support of around $31.80. (For more, see also: Macy's Reports Below Its 'Reversion to the Mean'.)
The relative strength index (RSI) is sending a negative signal too. It has been trending lower since peaking above 70 in June. Additionally, the RSI is currently around 40, and it would need to fall to roughly 30 before the stock would be oversold.
Analysts have lowered their third-quarter earnings estimates by almost 2% to $0.15 per share. But that's not all as estimates for the full-year have also dropped by about 1% over the past month to $4.01 per share. Even worse, analysts see earnings declining over the next two years.
M Annual EPS Estimates data by YCharts
However, revenue estimates have remained unchanged, despite the falling earnings estimates. It suggests that analysts see higher costs for the business over the next couple of years.
Additionally, analysts do not see Macy's shares rising either. Analysts have an average price target of around $36, which is 3% higher than the stock's current price.
Since November of 2017, Macy's stock has been a darling among investors with shares more than doubling off their lows. But at least for now, it would appear that the bull run may be over. The company will need to deliver strong results in the future to change current sentiment.
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.