Macy’s, Inc. (M), Nordstrom, Inc. (JWN): Tuesday’s Top Upgrades (and Downgrades)

What’s more, with only $548 million in trailing free cash flow (25% lower than reported net income), Nordstrom, Inc. (NYSE:JWN) lacks a free cash flow argument on which to hang its valuation. Indeed, with a price that’s 21 times trailing free cash flow, this department store actually looks more expensive when valued on cash profits than it does when valued on accounting profits.

In short, as wrong as Maxim appears to be about Macy’s being fully valued, it’s right on the money about Nordstrom. This stock, at least, deserves its downgrade.

RetailMeNot on sale?
The day’s not entirely devoid of good news for stock shoppers, however. This morning, the quiet period on investment banking underwriters of the July RetailMeNot IPO ran out, and the buy ratings began rolling in. In quick succession, each of Stifel Nicolaus, William Blair, Credit Suisse, RBC Capital, Morgan Stanley, and Jefferies & Co. initiated coverage on the stock — most with positive ratings.

Jefferies had the most positive report, calling RetailMeNot “one of the best positioned [companies] in the large and under-penetrated digital couponing space,” predicting “meaningful upside from current stock price levels,” and establishing a $40 price target.

That sounds pretty good. However, investors need to be aware that this is not a stock without risks. Consensus growth rates on RetailMeNot are still hard to come by at this early stage in the game. But wherever they ultimately shake out, the number’s going to have to be awfully big to justify the 65-times-earnings valuation at RetailMeNot, or even the lower, but still optimistic, 37 times free cash flow that the stock costs.

A continuation of the 53% rise in earnings that RetailMeNot posted between 2011 and 2012 may be fast enough to support this valuation. The big question for investors, however, will be how much longer RetailMeNot can keep up this pace. Until we know the answer to that one, however, caution should remain the order of the day.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Tuesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com is written by Rich Smith.

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