Cowen’s Chen sees an about 30% upside in Macy’s stock

Shares of Macy’s Inc (NYSE: M) have gained close to 100% since the start of 2021, but Cowen says investors are in for a lot more, heading into the holiday season.

In a research note on Thursday, Cowen’s Oliver Chen upgraded Macy’s to “outperform” with a price target of $27 a share that represents an about 30% upside from here. The analyst previously had a PT of $23 on the stock.

Chen’s reasons for the bullish call

Chen cited better inventory management, loyalty programs, and a transformation into a digital retailer as reasons for the bullish call. On CNBC’s “The Exchange”, he said:

“Digital, which is a higher margin channel, will be over 40% of their business over time. It’s the number two apparel online site with five million new customers, and they’re closing stores as well. Those are all good aspects for their future and margin profile.”

The analyst also highlighted that Macy’s was currently trading at 6 times on a PE basis, compared to 11 times at Nordstrom and 9 times at Kohl’s, which makes the stock “not very expensive”. The news comes weeks after the former Macy’s CEO said “all arrows point green over the long-term” after Macy’s reported Q2 results.

Macy’s competitive advantage over Amazon

The owner of notable names like Bloomingdale’s has a network of more than 500 stores in the United States, which, as per Chen, is its competitive advantage over Amazon (number one apparel online site).

According to the Cowen analyst, full-price selling and pricing both trends has worked well for Macy’s. Commenting further on why the future was bright for the retailer and momentum could continue, he said:

“Unemployment is low, and we’re seeing inflation because the consumer is strong. So, we expect operating margins to go up over time as Macy’s experiences fixed cost leverage on a low single-digit top-line growth.”

The Ohio-based retailer has a billion dollars in free cash flow.