Macy's: A Beaten Down Retail Stock with Hope?

Macy’s, Inc. (NYSE:M) used to be one of the biggest department store companies in the country, but been been notably struggling for survival this year in part due to the COVID-19 outbreak. Macy’s will be looking to show some signs of recovery as it reports its fourth-quarter earnings next week on November 19 before the open. The extent of Macy's net loss over the past 12 months is almost equal to the company's total net profits accumulated between 2017 and 2020. Although many investors have written off most "mall stocks" as doomed for inevitable bankruptcy, there is a good chance that there will be some to survive. Those companies that do will likely see a major stock price correction to the upside, and Macy’s could very well be one of those companies.

Macy's stock is currently down 56% year-to-date, and off approximately 60% from its 52-week high of $18.57 set on Jan. 8 before the pandemic. However, M has bounced back roughly 69% from its 52-week low of $4.38 from April 2.

More broadly speaking, it's been call buyers who've been busy in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 5.87 calls for each put in the past 10 sessions.

Echoing this is the security's Schaeffer's put/call open interest ratio (SOIR) of 0.70, which is ranked in the 2nd annual percentile -- meaning short-term speculators are more call-skewed than usual. Considering M is heavily shorted -- more than 40% of the stock's float is dedicated to these bearish bets -- it's possible some of these out-of-the-money calls are being used as an options hedge.

Macy’s has beaten expectations on three of its four most recent earnings reports. In the fourth quarter of 2019, Macy’s beat expectations by $0.07. In the following quarter, the first quarter of 2020, Macy's increased its EPS to $2.12, beating expectations by $0.16. In its most recent quarterly report for the company's fiscal third quarter of 2020, Macy's beat its target by $0.96. The company reported smaller-than-expected loss -$0.81 over the expected EPS of -$1.77.

It should be noted for dividend investors that Macy’s officially suspended its dividend for the back-half of 2020. The company has managed to maintain consistent revenue growth over the past few years, excluding 2020, which could be a sign of a loyal customer base. Macy's balance sheet isn’t looking great right now, but it is in a much better position as compared to some of its "mall stock" competitors. One of the keys for Macy’s will be recovering total revenue as quickly as possible without accruing much more on the debt side.

Overall, Macy's is no sure-thing for investors at this time. Recovery of Macy's stock price depends greatly on a large scale reopening of the U.S. economy. Hopes of an earlier-than-expected vaccine might be enough to get Macy's stock trending upward in the correction direction.