As Amazon (NASDAQ:$AMZN) has announced plans of moving into wardrobe, there has been increasing pressure on clothing retailers. Combined with rumors circulating that US retailer Macy’s (NYSE:$M) has already turned down offers from Amazon of $38 per share, a Macy’s acquisition by Amazon or other players is becoming increasingly viable.
At a closing price of ~$23.52 on June 5th, the $38 bid by Amazon would be about a $14 (or ~61.6%) premium, representing a market share of approximately 11.6 billion. When compared with Starboard Capital valuations, a $21 billion valuation on Macy’s real-estate portfolio alone means that Amazon should be bidding closer to the $70 per share range.
Amazing Value:
With rumors of an offer aside these favorable valuation figures imply that Macy’s is a cheap stock with tremendous upside that investors should be aware of.
From their acquisition of Whole Foods, Amazon has clearly proven themselves to be an industry disrupter of sorts, and who knows how Jeff Bezos plans to continue Amazon’s growth in the future.
Like any other deal, however, there are other factors that must be considered. Even though there may have been talks of an Amazon offer, they were mere rumors, and often times, this could leave speculative investors in very tough situations. However, Macy’s is different due to the company’s exceptional dividend yield rate of 6.7%. Additionally, traders will be keen on the spring-like formation that Macy’s share movement has modeled in the past 10 months.
What can be seen by this triangle shaped pattern is the consistency of the resistance line at the 50-day moving average. A break of the 50-day resistance line at $24 implies a potential rally of the share price to its 200-day moving average of $32.
This is a stock which has fluctuated frequently in the past. As a result, a resistance break at $24 may be realistic, and such momentum would only be facilitated by takeover offers from Amazon or any other interested parties.
It’s simple for investors to understand that Macy’s still has tremendous value due to their real estate holdings, and may have been over-punished due to their lagging retail growth.
With relatively healthy metrics and a low share price, value investors, and potential M&A players may find Macy’s to be a very attractive opportunity. With increasing interest in the retail space, potential players could include Chinese investors along with the traditional private equity firms. This is particularly true in Macy’s case, as such investors love the assets that Macy’s has to offer, and have raised billions in funding for such capital reliant businesses. Chinese firms also have a clear advantage due to the support of its government-backed banks which approve of such acquisitions.
Featured Image: depositphotos/littleny
