Shares in Macy's (NYSE:M) are up 27.7% over the past 12 months, outperforming the S&P500 which has grown by only 18.1%. Shares in the company are now trading at $57.45, which is a bit lower than the 52 week high of $61.26.
The company has been able to grow its earnings per share at a high pace in recent years. This means, despite the amazing growth in price per share in recent years, the company is still trading at a relatively low p/e ratio of 14.3 times trailing twelve month earnings.The 5 year average p/e ratio stands at 10.8. For the current fiscal year, which ends in January 2015, analysts expect the company to have earnings per share of $4.44, putting the forward p/e ratio at only 12.9. For the next fiscal year, EPS is expected to grow by another 13.1%, to reach $5.02. In its recently released results for the 2nd quarter of the current fiscal year, the company stated EPS had reached $0.80, an increase of 11% to last year's $0.72. This was below analyst expectations of $0.86 and led to a drop from the 52 week high.
The number of stores has been stable in recent years, which means the only way to grow revenues is by increasing the sales per store. Over the past 5 years, Macy's average revenue growth was 2.33%. For the current fiscal year, analysts expect the company to have $28.5 billion in revenues, an increase of 2.0% to last year's $27.9 billion. The forward price to sales ratio stands at 0.7, which is quite high considering the fact Macy's has traded at an average p/s ratio of 0.5 over the past 5 years. In recent years, Macy's has been able to grow its profit margin at a decent pace, which is part of the reason EPS growth has been so high.
M Shares Outstanding data by YCharts
In recent years, Macy's has been buying back large amounts of its own stock. Buying back shares is a great way of returning capital to shareholders, as a lower number of shares outstanding leads to higher earnings per share. Over the past 12 months, Macy's has spent $1.45 billion on share repurchases.
Macy's also returns a lot of capital to its shareholders in the form of dividends. Over the past 5 years, the company has increased its dividend by an average of 12.5% per year. The dividend currently stands at $0.31 per quarter, yielding 2.18% a year at the current price per share. The payout ratio over the past 12 months was only 25.9%, leaving plenty of room for further dividend growth.
M Total Long Term Debt (Quarterly) data by YCharts
Macy's balance sheet looks very good, with over $1.6 billion in cash and short term investments. This means Macy's has over 8% of its current market cap in cash. The current ratio, which measures short term financial health, stands at 1.52, which is very good. The long term debt is quite high, at $7.2 billion, but it has been going down in recent years.
Shares in Macy's have gone up at a high pace over the past 12 months and despite the recent dip, the company is still trading at a significant premium to its 5 year average p/e and p/s ratios. The amazing growth in EPS over the past 5 years has been fuelled by both stock buybacks and a growing profit margin. However, revenue growth is very low, and profit margin expansion can't continue forever. The company has a very healthy balance sheet, allowing for more share repurchases in the future. The valuation multiples for Macy are a bit too high for me at the moment, but I will be buying if and when the company drops back to the low 50's.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.