Macy's Company Valuation

I. INVESTMENT RECOMMENDATION

Investment Recommendation: Buy Target Price & Range: $ 26.02-$ 63.4

Current Price: $ 27.23

Valuation Approach:

DCF Relative Value Option Value

$ 63.4 $ 26.02 NA

Analyst Comment: Macy's Inc. is currently priced at the bottom of the valuation range. Given its positive cumulative net earnings over the current fiscal year and its localization program and the enhancement of its Internet site, the company is going to have a modest growth rate in the next 5 years. For Macy's Inc., the DCF valuation is more accurate than the relative valuation because of its growth prospects. The relative valuations do not fully take into account the stock repurchase program and remodeling of stores. Therefore, we think that Macy's Inc. is currently undervalued based on the DCF valuation and issue a buy recommendation on this stock.

II. PORTFOLIO ARRANGEMENT

Macy's Inc. is a retail organization operating retail stores and internet website that sell a range of merchandise, including men's women's and children's apparel and accessories, cosmetics, home furnishings and other consumer goods. The company is estimated to have a modest growth for the next 5 years, benefiting from its localization program and the enhancement of its Internet site.

What's more, we should see that the company belongs to cyclical industry and since the economy is in a new stage of recovery, Macy's will have a good performance.

III. VALUEATION RATIONALE

As Macy's Inc. has a modest growth rate company, the valuation calls for a 2-stage model with the growth period of 5 years. Because of the company's capital intensive nature, we can estimate the growth of capital expenditure, depreciation and return. What's more, accounting for possible changes in the company's financial structure, we choose the FCFF model.

IV. VALUATION BY FUNDIMENTALS

Macy's Inc. (M)

To value Macy's, we used the 2-stage FCFF model since the company is large and growing at a modest rate within 5 years because of its localization program and the enhancement of its Internet site.

The drivers to this value are: the growth rate of the high growth period, the duration assumed during the high growth period and the debt ratio of the stable growth