Macy’s (M) and Emerson Electric (EMR): Growth & Income Stocks


Macy’s M is one of the nation's premier retailers, operating about 885 stores in 45 states, the District of Columbia, Guam and Puerto Rico, under the names of Macy's, Bloomingdale's, Bloomingdale's Outlet and Bluemercury, as well as the, and websites.

The company recently reported Q4 17 results where they beat the Zacks consensus earnings estimate for the third consecutive quarter, but came in just short of the revenue estimate.  But overall, the year over year data was better than expected with sales rising by +1.8%, comparable sales improving by +1.3%, and adjusted diluted EPS (taking out deductions from the tax reform law) growing by +39.6%.  Also, on a fiscal year basis, operating income jumped up by +48.8%, and net cash flows rose by +7.9%.  To add to the positive quarterly results, management noted that these positive trends carried into January (Q1 18) as comps, gross margins, and merchandise margins seeing year over year strength. 

As part of the company’s cost cutting plans, the company has been focused on several key components; the opening of new stores, the closures of less profitable stores, and its real estate portfolio. In 2017, they opened 36 Bluemercury stores, 2 Macy’s stores, and one Bloomingdale store.  At the same time the company has closed 83 out of the 100 stores that they had earmarked in late 2016.  As for its real estate portfolio, Macy’s gained $411 million in cash proceeds from sales of assets, these sales included warehouses, parking garages, and outparcels.  Going into FY 2018 management remains focused on evaluating its real estate portfolio for new opportunities, and the departure of non-strategic locations. 

Due to these positive data points, management guided FY 19 EPS, revenue, and comparable store sales above consensus.  EPS is now expected to be between $3.55-3.75, above the previous expectation of $3.03, Revenues between $24.34-24.71 billion verses $24.34 billion, and comparable store sales to be between 0-1% well above the previous expectation of a decline of -1.3%. 

This news caused analyst estimates for Q1 18, Q2 18, FY 18, and FY 19 to all see positive estimate revisions over the past 30 days; Q1 18 improved from $0.23 to $0.38, Q2 18 grew from $$0.40 to $0.53, FY 18 rose from $2.80 to $3.63, and FY 19 jumped from $1.67 to $3.17. 

The big turnaround at Macy’s can be seen in the Price and Earnings Consensus Graph below.

Macy's Inc Price and Consensus

Macy's Inc Price and Consensus | Macy's Inc Quote

To add to the overall positive news, Macy’s also pays a 5.1% annualized dividend.  So while the company is growing, it is also paying a very sizable dividend too. 

Emerson Electric Company EMR is a global technology and engineering company providing innovative solutions for customers in industrial, commercial, and residential markets. Their Emerson Automation Solutions business helps process, hybrid, and discrete manufacturers maximize production, protect personnel and the environment while optimizing their energy and operating costs. Their Emerson Commercial & Residential Solutions business helps ensure human comfort and health, protect food quality and safety, advance energy efficiency, and create sustainable infrastructure.

Emerson also recently reported earnings where they beat both the Zacks consensus earnings and revenue estimates.  The company saw year over year improvements in net sales (+19%), EPS (+18%), underlying orders (+7%), and EBIT margins came in at +14.2%.  EPS was driven by +7% organic sales growth with China seeing double digit growth.  Further, the sales growth was broad based regionally in both segments; Automation Solutions, and Commercial & Residential Solutions.

Due to the strong results, and positive future outlook management increased both FY 2018 EPS and sales guidance; net sales are now expected to be up 11-13%, above the previous range of 8-10%, and EPS is now guided at $3.05-3.15, well above the prior guidance of $2.66-2.86. 

To add to the positive news, during its investor meeting, management upgraded its long-term FY 2021 financial targets; revenues were lifted by +5% to $21 billion due to stronger global gross fixed investment, and EPS was increased by +17% to $4.50 from $3.85 due to stronger earnings and its share repurchase program.  Management also commented that they expect stronger dividend growth through FY 2021. 

This news caused analysts to positively revise earnings estimates for the next two quarters, and FY 2018-2019 as you can see in the table below.

Lastly, the company currently pays a solid +2.8% annual dividend yield, but that is expected to increase over the coming quarters.

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