Shareholder activism is one of the catalysts I look at very closely when evaluating potential turnarounds in the Cabot Turnaround Letter. Lately, there has been a notable uptick on that front in a number of big-name companies across several different industries. In light of this development, I think this would be a good opportunity to take a closer look at a couple of them as we evaluate the possibility of a rebound in each of these stocks for 2025.
One company that has been commanding most of the activist investor headlines of late is of course the well-known retailer, Macy’s (M).
The company has come into the crosshairs of value-focused activist equity firm Barington Capital, which believes Macy’s shares are “significantly undervalued” relative to its industry peers and “doesn’t reflect the potential of its turnaround plan.” Barington has recently built a stake in Macy’s of undisclosed size in conjunction with the private equity firm, Thor Equities.
Barington has laid out what it sees as the ideal path to a successful turnaround for Macy’s, including the following points:
1. A reduction in capital expenditures from the current 4% to around 2% of total sales.
2. The commencement of a $2-to-$3 billion stock buyback authorization over the next three years.
3. The creation of a real estate subsidiary that would collect rents from the company’s retail ventures.
4. Consider the possible sale of its luxury Bloomingdale’s and Bluemercury lines, along with other strategic alternatives.
After revealing partial third-quarter results last month, Macy’s reported its complete Q3 earnings on Wednesday, with revenue of $4.7 billion decreasing 3% from a year ago and earnings of four cents a share beating estimates by a penny.
[text_ad]
A positive aspect of the report was a 2% comparable sales increase for Macy’s First 50 locations (stores with stronger merchandising, better visual presentation, and enhanced customer services) for the quarter, while Bloomingdale’s reported comp sales growth of owned and owned-plus-licensed-plus-marketplace of 1% and 3%, respectively. Bluemercury, meanwhile, reported comparable sales growth of 3%. Credit card revenue also came in above Wall Street’s expectations.
Commenting on the Q3 results, management said they “reflect the positive momentum we are building through our Bold New Chapter strategy,” and value investors see a compelling valuation in Macy’s in the form of the company’s EV/EBITDA multiple of 3.4x, or a 34% discount against the average 5x forward EV/EBITDA multiple of its industry peers.
Income investors, meanwhile, may be allured by Macy’s attractive 3.8% dividend yield, which compares favorably to the retail industry average. All told, it’s an alluring turnaround prospect for investors with a long-term timeframe.
Another well-known activist investor, David Einhorn of Greenlight Capital, has recently initiated a stake in agricultural equipment maker CNH Industrial (CNH). CNH is admittedly more of a cyclical turnaround play, but as the stock is coming off a nearly 50% drop over the last couple of years, I think we can classify it as a potentially worthwhile candidate for value-oriented investors.
Einhorn sees value in CNH due to the fact that the farm equipment spending cycle is currently still in a downturn and retail investors see little value in the sector—exactly the type of backdrop he like to see from a contrarian perspective.
Additionally, he finds the 4.2% dividend yield to be an attraction and notes the company is repurchasing around 6% of its shares, while there’s also “very little financial leverage” and that “sometime next year or in early 2026” ag equipment industry will likely commence a renewed upcycle.
With an attractive forward P/E ratio relative to industry peers, the stock is high on my watchlist entering the New Year.
To learn more about the other companies I’m watching (and buying) now, subscribe to Cabot Turnaround Letter today.
[author_ad]
