What happened
Shares of Macy's (M 2.88%) were climbing higher this week after investors responded positively to news that Saks Fifth Avenue's e-commerce unit was seeking to go public early next year at a valuation of $6 billion, making Macy's business look more valuable by comparison. The news came after activist investor Jana Partners had urged Macy's in a letter last week to make a similar move, splitting its digital business from its brick-and-mortar stores.
As of Thursday at 2:05 p.m. EDT, the stock was up 9% for the week.
Image source: Macy's.
So what
Macy's shares surged on Monday after the news broke about Saks. According to The Wall Street Journal, Saks' e-commerce unit is aiming for IPO in the first half of 2022 and targeting a valuation at $6 billion, which is triple the $2 billion it was worth in March. Like Macy's.com, Saks' online business has soared during the pandemic, and investors, including Jana Partners, are hoping Macy's can make a similar move to unlock value.
After the stock jumped 17.5% on Monday, shares cooled off on Tuesday, falling 6.1% as investors perhaps realized that the Saks news has no direct bearing on Macy's, since management has not given any indications that it is considering such a move despite pressure from Jana Partners.
Wall Street analysts also weighed in on the debate. In a note this morning, Citibank analyst Paul Lejuez said he didn't think a separation between the digital and physical businesses made sense for Macy's, especially as the company has spent years integrating the two to refashion itself as an omnichannel retailer. Lejuez maintained a sell rating on the stock and a price target of $20.
On the other hand, Cowen analyst Oliver Chen raised his price target from $27 to $32 and kept an outperform rating on the stock. Though he didn't think a spin-off of the e-commerce business was likely in the near term, he believed it could be worth $40 per share or more as a stand-alone entity.
Now what
While the valuation argument for the separation might make sense for the retail stock, Macy's would face some challenges. Notably, the company has several hundred stores compared to just a few dozen Saks locations, making the move more logistically difficult, and it would undermine the omnichannel efforts Macy's has undertaken in recent years.
Still, such a split could allow investors to see the value of Macy's online business, and Jana has been a successful activist before, getting Whole Foods to sell itself to Amazon in 2017.
