How High Will Macy's Fly?

Shares of Macy's (NYSE: M  ) hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.

How it got here
Apparently talk of retail stocks getting ahead of themselves was largely premature. Macy's grew its diluted EPS in 2011 by 36%, marking its third-consecutive year of double-digit growth. Same-store sales growth for the year came in at 5.3%, which was far ahead of the initial guidance at the beginning of the fiscal year where management had guided to 3% same-store sales growth.

The key drivers to Macy's growth have been a mixture of skill and good fortune. In a very uncertain retail environment, Macy's has provided its consumers with a good mix of product that they have responded well to. In addition, miscues from J.C. Penney (NYSE: JCP  ) as it transitions to a new pricing platform have allowed Macy's to potentially attract customers that it would otherwise normally have not lured to its stores.

How it stacks up
Let's take a look at how Macy's stacks up next to its peers.

M Chart

M data by YCharts

You can really get a feel for how depressed the retail sector has been since the recession with only Nordstrom (NYSE: JWN  ) moving higher -- and by just a nose at that.

Company

Price/Book

Price/Cash Flow

Forward P/E

5-Year CAGR

Macy's 2.9 8.3 10.8 (0.4%)
J.C. Penney 1.9 9.4 11.8 (2.8%)
Nordstrom 5.9 10.3 14.1 4.9%
Kohl's 1.9 6.6 9.8 3.9%

Source: Morningstar, author's calculations. CAGR = compounded annual revenue growth.

This comparison paints a much different story. Here we can see that luxury retailers such as Nordstrom have vastly outperformed their peers in relation to revenue growth over the past five years. That growth does come with a price as it is the most expensive company on an overall basis. Based on these figures, Kohl's (NYSE: KSS  ) looks inexpensive, but when you take into account that Kohl's EPS forecast for 2012 came in lower than Wall Street had expected, and its gross margin is under pressure, it paints its value in a totally different light.

What's next
Now for the real question: Can Macy's continue to head higher? That question really depends on whether Macy's can continue to keep the correct mix of products in its stores and if it can continue to entice customers to spend without deep discounts.

Our very own CAPS community gives the company a two-star rating, with 63% of members giving it an outperform rating. I already have a CAPScall of outperform already in place on Nordstrom, but that company is already pricey based on the metrics we looked at above. I don't see any reason why Macy's couldn't continue higher so long as it continues to execute well while most of its peers flounder.

Craving more input on Macy's? Start by adding it to your free and personalized watchlist.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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