Macy's stock has delivered a strong 88.5% return over the past year, yet valuation checks still suggest the shares may be trading below what the underlying cash flows and earnings would justify.

• Over the last 12 months, Macy's has returned 88.5%, putting recent share price strength at the center of the valuation debate.
• Fresh coverage with an Overweight rating and a US$30 price target, along with interest from Berkshire Hathaway's Greg Abel, can support confidence in Macy's earnings potential, while any disappointment in consumer spending or execution on its store footprint and e commerce shift may weigh on the equity story.
• Macy's screens as undervalued on both a Discounted Cash Flow (DCF) intrinsic value estimate, which points to roughly a 42.2% discount to fair value, and on earnings multiples, and it passes 5 of 6 broader valuation checks, which you can see in more detail at 5 out of 6.

The issue now is whether Macy's current price already reflects these supportive signals or still leaves a meaningful margin between market price and intrinsic value.

Is Macy's Still Cheap on Cash Flow?

The Discounted Cash Flow (DCF) model looks at the cash Macy's can generate for shareholders over time based on its current business profile. For Macy's, the model uses latest twelve month free cash flow of about $966.0 million and assumes cash flows that broadly recover rather than surge or collapse, which suits a mature retailer with ongoing store and e commerce investments.

On these cash flow projections, the DCF model points to an estimated intrinsic value of about $39 per share, which compares to a current share price that implies roughly a 42.2% discount. The recent Overweight rating and $30 price target from Morgan Stanley provides one reason why interest in Macy's has picked up. However, the stock price still sits below what this cash flow based model suggests.

On this DCF view, Macy's stock currently appears undervalued.

Our Discounted Cash Flow (DCF) analysis suggests Macy's is undervalued by 42.2%. Track this in your watchlist or portfolio, or discover 44 more high quality undervalued stocks.

Does Macy's Look Undervalued on Earnings?

P/E tends to be a useful cross check for a retailer like Macy's because earnings are a core focus for equity investors in the sector. Macy's currently trades on a P/E of about 9.0x, compared with a Multiline Retail industry average of roughly 18.9x and a peer group average near 14.4x, so the stock sits at a clear discount to both benchmarks.

The tailored “fair” P/E for Macy's, which blends its sector, size and risk profile, is around 12.3x. Against that yardstick, the current 9.0x multiple implies the shares trade at a sizeable gap to what this framework would suggest for the business, even after the strong 12 month share price performance and renewed interest following Morgan Stanley’s coverage and Greg Abel’s stake.

On this P/E comparison, Macy's stock appears undervalued relative to both its industry and the fair multiple implied by its fundamentals.

The Macy's Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where Macy's valuation puzzle leaves off by spelling out which growth, margin and earnings paths would need to play out for the stock to be worth significantly more or less than today's price. They sit on Simply Wall St's Community page. Each Narrative treats fair value as a thesis about Macy's business that you can track over time, rather than a single point in time.

Add your own narrative on Macy's to present a data-focused case on whether moves like Morgan Stanley's new coverage and Greg Abel's recent share purchase ultimately appear justified. This approach can clearly set out your current view and provide a reference point for comparison as future results and news are released.

Do you think there's more to the story for Macy's? Head over to our Community to see what others are saying!

The Bottom Line

For Macy's, both the Discounted Cash Flow (DCF) intrinsic value estimate and the earnings multiple view point in the same direction, with the stock screening as undervalued across the frameworks used here. The broader valuation checks also look supportive, which suggests the current discount is not just a quirk of one model. From here, what really matters for whether that gap closes is how effectively Macy's can continue converting its footprint and e commerce shift into resilient cash flows, while avoiding a deeper pullback in consumer spending or execution issues that would support the market's current level of caution.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.