Should You Buy Macy's (M) Stock Ahead of Q1 Earnings?

Shares of Macy's M are up 11% over the last 12 weeks as the department store giant continues to impress investors after an extended downturn had many worried that its better days were long gone. With that said, things can change quickly, so investors need to know how Macy's is expected to perform in the first quarter.

Macy's reported relatively solid fourth quarter sales, up 1.8% from the year-ago period. The company's earnings surged 39.6% to $2.82 per share. Macy's also once again proved its commitment to improving online sales, reporting its 34th consecutive quarter of double-digit digital sales growth. "We head into 2018 with an improved base business, healthy inventories, a focused and engaged organization and a clear path to return Macy's to growth," CEO Jeff Gennette said in a statement last quarter.

But that was last quarter, meanwhile, Amazon AMZN and other online sellers have only gotten bigger. So let's take a look at Macy's current first quarter outlook and some other key metrics ahead of the retail bellwether's Q1 earnings report on Wednesday, May 16.

Latest Outlook & Valuation

Our current Zacks Consensus Estimates are calling for Macy's to report Q1 revenues of $5.43 billion, which would mark a 1.7% climb from the year-ago period. At the other end of the income statement, Macy's is expected to see its quarterly earnings skyrocket by 50% to hit $0.36 per share.

Of course, top and bottom line growth estimates are just two of the many things investors will be concerned with when Macy's reports. We can also turn to our exclusive non-financial metrics consensus estimate file to help prepare.

The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.

According to these consensus estimates, Macy's comparable store sales are expected to dip marginally, or 0.01%. This is something investors need to take into consideration as comp sales are hugely important for retail businesses and often help encapsulate the overall health of the company.

Another important factor to consider is Macy's current valuation and how it stacks up not just against its peers, but itself. Heading into Friday, Macy's was trading with a Forward P/E of 8.4, which marked a discount compared to the "Retail - Regional Department Stores" industry's average of 10.1. The company also presents far better value than it did at the start of March when it traded at 10.6x forward earnings. This is also impressive considering that Macy's has seen its stock price climb over that period.

Earnings ESP Whispers

Investors will also want to understand what chance Macy's has to surprise investors with better-than-expected earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

In contrast, a stock with a Zacks Rank #3 (Hold) or worse, coupled with a negative Earnings ESP, is one that we typically want to avoid during earnings season.

The company's Most Accurate Estimate-the representation of the most recent analyst sentiment-calls for earnings of $0.34 per share, which is 2 cents worse than our current consensus estimate. Macy's is also currently a Zacks Rank #3 (Hold) and sports an Earnings ESP of -5.01%. Therefore, M is a stock that could fall short of our quarterly earnings estimate.

Surprise History

The department store's earnings surprise history and the effect that these surprises have had on its share prices are two other important factors to consider ahead of Macy's earnings report.

Macy's, Inc. Price, Consensus and EPS Surprise

Macy's, Inc. Price, Consensus and EPS Surprise | Macy's, Inc. Quote

We can see that Macy's has posted strong earnings results recently, topping quarterly estimates in six of the trailing eight periods. Furthermore, these beats have also led to positive momentum immediately following Macy's quarterly earnings release. We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. Macy's stock has turned positive in five out of these last eight windows.

Macy's is scheduled to report its first quarter financial results before the market opens on Wednesday. Make sure to check back here for a full breakdown of the retail giant's Q1 results!

Fellow department store powers J.C. Penney JCP and Nordstrom JWN report their quarterly financial results on Thursday.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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