The Macerich Company (MAC, Financial) is a self-administered and self-managed real estate investment trust (REIT). The company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the U.S.
So let's take a look at this company and try to explain to investors the reasons I would stay away from this stock.
Online Shopping
There is a significant rise in online shopping through the Internet mobile phones and tablets. This affected the demand in a negative way as well as increased competition. The recent lucrative deal with Deliv is expected to offset such pressure, starting profiting from the growth of online shopping.
Geographic Concentration
With centers located in Arizona, California, New York, New Jersey and Connecticut; the company concentrate risk and makes its financial performance more vulnerable to the economic andreal estate conditions of those regions.
Important Considerations
Results could be adversely impacted by the rise in interest rate in the long term, because of the major interest cost on new debt. Also, slower-than-expected growth in retailer expansion, and a higher-than-normal level of retailer bankruptcies, are threats to the firm.
Analyst Recommendation
The firm is currently Zacks Rank # 3–Hold, and it also has a longer-term recommendation of “Neutral”. A Hold rating indicates that the stock, over the next one to three months, will perform at an annualized rate of 10.56%, which is very similar to the one projected for the S&P 500. For investors looking fora better Zacks Rank, Acadia Realty Trust (AKR, Financial), American Realty Capital Properties Inc. (ARCP, Financial), Excel Trust Inc. (EXL, Financial), General Growth Properties Inc (GGP, Financial), Ramco-Gershenson Properties Trust (RPT, Financial), Saul Centers Inc. (BFS, Financial) and Simon Property Group Inc. (SPG, Financial) could be the options.
P/E, Earnings and ROE
In terms of valuation, the stock sells at a trailing P/E of 20.9x, trading at a premiumcompared to the industry mean. Earnings per share (EPS) decreased in a tremendous way in the most recent quarter compared to the same quarter a year ago, to -$0.07 per share for the fourth quarter of fiscal 2014. We include in the next graph the stock price because EPS often lead the stock price movement. As we can appreciate in the chart, the price performance makes the stock appealing with an upward trend over the last five years.
Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has decreased when compared to the same quarter one year prior. Let´s compare the current ratio with the peer group in the next table:
| Ticker | Company Name | ROE (%) |
| MAC | Macerich | 12.51 |
| AKR | Acadia Realty | 5.7 |
| ARCP | American Realty Capital Properties | -30.08 |
| EXL | Excel Trust | 3.17 |
| GGP | General Growth Properties | 3.73 |
| RPT | Ramco-Gershenson Properties Trust | 1.43 |
| BFS | Saul Centers | 11.16 |
| SPG | Simon Property Group | 22.56 |
As we can see, the firm has a higher ROE than its comps, except from the one showed by Simon Property Group.
Final Comment
Although property prices are finally on the recovery path, online purchases still remain a concern for the company.The geographic concentration and anticipated rise in interest rates are the headwinds for Macerich's growth in the future.
According to Yahoo! Finance, the estimated one-year target share price is $64.9, so if you buy shares at current market price ($62.67), your return from price appreciation would be 3.56%,In addition, you have to consider any cash flow received by the asset. So for holding the stock one year, you'll be paid a dividend of 62 cents per share each quarter, totalizing $2.48 at the end of the year. If we divide this number by current price per share, we obtain the dividend yield, which is the other component of the return on an investment for a stock, and in this case is 4%. So the total expected return for investing in Macerich is 7.56%.
This time, I do not have a buy recommendation on the stock. Ray Dalio (Trades, Portfolio) bought the stock last year but sold it out few months later.
Disclosure: Victor Selva holds no position in any stocks mentioned.
