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Three reasons Macy's is a strong buy

Talking Numbers

Macy's reported a mixed bag of earnings on Wednesday.

The retailer reported better than expected earnings per share, but said that winter weather took a toll on sales—shocker.

Nevertheless, results were rather positive. Macy’s reiterated its 2014 full year guidance, increased its dividend by 25 percent and raised its share repurchase program by $1.5 billion dollars.

The earnings report kept shares of the department store relatively flat throughout the trading day, bouncing from positive to negative and then eventually settling slightly lower.

But as far as its performance on the year, Macy’s has managed to stay afloat, shares are up 8 percent, while competitors like Sears and J.C. Penney continue to take a hit.

So, should you shop Macy’s shares for your portfolio?

“I like the stock here,” said David Seaburg, head of sales and trading at Cowen & Company, who called the stock cheap relative to EPS estimates, and pointed out that the retail space as a whole is underperforming the S&P 500 by about 600 basis points on the year. “I think there’s room to the upside.”

And Seaburg gave three reasons why Macy’s will continue to be a solid company going forward.

  1. A shift in consumer spending. “In 2013 it was all about the home and people spending on the home. Now we are starting to see a shift into clothing and apparel. Macy’s will benefit from that.”
  2. Lackluster competition. “I think we are entering an environment where the J.C. Penney’s and Sears are hemorrhaging market share. So Macy’s can come in and take market share as they start to breakdown.”
  3. Incredible vendor relationships. “Given their scale, Macy’s can demand markdown allowances from vendors, which allows highly sustainable margins.”

And according to JC O’Hara, chief market technician at FBN Securities, the charts are bullish, too.

“If you have to be in the retail sector, this is one of the best of breeds,” said O’Hara. “Macy’s has all characteristics that I look for in a positive chart.”

But O’Hara warned not to pull the trigger on Macy’s just yet.  His suggestion, “If you are looking to establish a new position, I would be patient. Look to enter right around $50 dollars per share.”

Check out the video above for the full discussion on Wednesday’s CNBC “Street Signs”.

 

 

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