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Starboard Value buys stake in Macy's, thinks it's trading 70% below value

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Staff writer ▼ | July 16, 2015
Investment firm Starboard Value announced it took a stake in Macy's and said company's stock is trading more than 70 percent below value.
Retail   U.S. retails chain should be traded above $125
Macy's was trading at just over $70 a share when it should be above $125 given the high value of its enterprise, Starboard Chief Executive Jeffrey Smith told the CNBC Institutional Investor Delivering Alpha Conference in New York.

Smith said on the surface Macy's looked "fairly valued", appearing like its peers with respect to valuation, operating margins and performance. But closer scrutiny reveals the company has a sizable real estate portfolio that currently makes up more than 70 percent of its $29 billion enterprise value.

Macy's flagship Herald Square store in New York alone was worth $4 billion, by Starboard’s estimate, while properties in San Francisco and Chicago were worth more than $1 billion. With another 400 mall locations worth about $13 billion, Macy's had a real estate value of about $21 billion, Smith said.

"We believe there is an opportunity to create two companies - the Macy's operating business as well as the real estate company," Smith said. "We believe you can accomplish this goal while maintaining the dividend, and actually making it safer, and maintaining the credit rating."

Macy's credit card earnings was another huge positive for the company, bringing in earnings of $8.5 billion, Smith said.