Macy's: Sizable Share Repurchase Program Creates Strong Support For Shares

| About: Macy's Inc. (M)

Shares of Macy's (M) ended last week on a strong note. The retailer known from its two main brands, Macy's and Bloomingdale's, increased its current share repurchase authorization by $1.5 billion, prompting shares to trade higher.

Share Repurchase Announcement

Macy's board of directors announced the increase in the share repurchase authorization to $1.86 billion. The addition of $1.5 billion to the current repurchase program gives the company an authorization to retire up to 12.0% of the company's shares outstanding at current price levels.

CEO and Chairman Trry J. Lundgren commented on the announcement, "We remain committed to using our excess cash to enhance shareholder value through share buybacks and dividends. This reflects the strength of our company, and our confidence in our continuing ability to deliver growth in sales, earnings and cash flow."

Macy's has resumed its share repurchase program in August of 2011, after the company did not repurchase any shares for years in a row. From that point in time, Macy's has retired roughly 42.6 million shares for a total consideration of $1.49 billion, for an average price of roughly $35 per share.


Macy's ended its third quarter with $1.26 billion in cash and equivalents. The company operates with $6.94 billion in short and long term debt, for a net debt position of $5.78 billion.

For the first nine months of 2012, Macy's generated revenues of $18.3 billion. The company net earned $605 million, or $1.45 per diluted share.

The company is on track to generate annual revenues of $27 billion, on which the company could earn $1.3-$1.4 billion, or $3.35-$3.40 per diluted share. Assuming Macy's could execute the share repurchase program overnight, annual earnings could increase to $3.75 per share.

The market currently values Macy's at $15.6 billion. This values the retailer at 0.6 times annual revenues and 11-12 annual earnings.

The company pays a quarterly dividend of $0.20 per diluted share, for an annual dividend yield of 2.0%.

Some Historical Perspective

Year to date, shares of Macy's have risen some 22%. Shares steadily rose from levels of $32 in January and rose to highs of $41 in May. Shares fell back to the low thirties in July, but recovered to current levels around $39 per share.

Shares of Macy's have steadily risen from lows of $6 in 2008 to highs of $41 this year, bringing shares within reach of all time highs of $46 in 2007. Between 2008 and 2012, Macy's increased annual revenues from $24.9 billion to an estimated $27 billion this year. The company is on track to report another year of strong earnings growth.

Investment Thesis

Macy's continues its share repurchase program, which so far has created value for shareholders. So far, the company retired over 40 million shares for $35 million, for a theoretical profit of $200 million, attributable to shareholders. Over the past year, Macy's has retired roughly 10% of its shares outstanding, on track to retire another 12% of its shares in the coming year.

The new buyback program will provide quite some support for shares if Macy's decides to execute the program entirely in the coming year. At current prices, Macy's could repurchase 47 million shares, or roughly 200,000 shares per day. The buybacks create a daily demand of roughly 3% of average traded volume of 6 million shares over the past month.

Shares look fairly priced and the stock could re-test all time highs of 2007. The crucial test will be the same-store sales report for December and the fourth quarter results.

Investors could hold on to shares, although I see few reasons for exceptional returns for short term returns.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.