Business is crummy, but at least the Macy's Thanksgiving Day Parade is a go. It's hard to believe, but the day of thanks is upon us. Despite the struggling economy, a near depression, and what is expected to be a long recession, we do have much to be thankful for.
What started as a pricking of the speculative bubble in housing became a wake up call for the dangers of too much debt. We are full bore in crisis mode and, yet, if you really look at it all, things are not that bad. Yes, your portfolio may be down 40% or more, but most of you still have jobs and interest rates are still very low. Bad as this has been, it could be much worse.
Despite the recent news that Hewlett-Packard (NYSE: HPQ) expects first-quarter profits, ending Jan. 31, 2009, to meet or beat current expectations, most companies dare not provide any guidance as the train wreck economy makes it difficult at best to predict sales and revenue.
That certainly is the case at Macy's (NYSE: M). Today, the large department store leader announced third-quarter profit ending Nov. 1 that missed expectations by a wide margin. Macy's lost $42.8 million, or 31 cents per share.
This should come as no surprise, but unfortunately analyst estimates were way off the mark. They were expecting a loss of three cents on higher revenue.
Going forward, the company is in self-preservation mode. Macy's is reducing capital expenditures to $75 million in fiscal 2009, down from the $125 budget for the current year.
The question for M is, can it survive a period of multiple quarters of losses? With $10 billion of debt on the balance sheet, the company has some serious issues to resolve in 2009.
Of course, investors have already weighed in on the matter. Shares of M are down more than 80% from their 52-week high. With today's news, M shed more than 13%.
I guess I look at that and conclude that the market is pretty much expecting the worst.
Think about it a bit. The company has a book value of some $23 per share. The stock trades for $6 per share.
Such a state gives the company a huge cushion with which to sustain a period of losses. Eventually those losses will come to an end. When a more normal economic period takes hold, M investors at these prices stand to do really well.
I've been waiting patiently for this crisis to end. There may be more damage to come, but owning a company like M makes a ton of sense to me. I'd definitely consider owning shares at current levels.
Jamie Dlugosch is a contributor to OptionsZone.com.
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