We came across a bullish thesis on Nordstrom, Inc. (JWN) on ValueInvestorsClub by FT42. In this article we will summarize the bulls’ thesis on JWN. Nordstrom, Inc. shares were trading at $22.11 when this thesis was published, vs. closing price of $22.24 as of Sept 10.
A fashionable retail store showcasing the company’s apparel products.
Nordstrom, currently trading at a P/E multiple of 12, presents an intriguing investment opportunity due to several near-term catalysts. The company’s market value has nearly halved over the past five years, but three key developments could improve its valuation within the next 12 months.
First, Nordstrom’s valuation could naturally expand as the consumer spending environment improves. Since the Federal Reserve’s interest rate hikes, Nordstrom has struggled due to muted discretionary consumer spending. However, with inflation significantly reduced in 2024, a more favorable consumer environment is emerging. As spending rebounds, Nordstrom’s multiple could rise to its historical level of 15, representing a 25% upside from its current level.
Second, Nordstrom has made strategic internal changes that could drive organic growth. The recent launch of a digital marketplace on its ecommerce platform and a renewed focus on the brands that matter most to customers signal a more targeted approach to inventory management. This shift could yield positive long-term results, enhancing revenue growth and profitability.
Third, there is potential for a go-private deal, which could unlock significant value for shareholders. The Nordstrom family is actively exploring such an option, and any progress could serve as a short-term catalyst for the stock.
Despite challenges since COVID-19, Nordstrom’s recent financial performance shows signs of recovery. In FY2024 Q1, its revenue was $3.221 billion, down just 3.8% compared to FY2019 Q1, despite the closure of 13 stores in Canada. Adjusting for these closures, its revenue is nearing pre-pandemic levels. However, its gross margin stands at 31.6%, slightly below the 33.5% level in 2019, while its selling, general, and administrative (SG&A) expenses have risen to 35.8%, reflecting costs related to ecommerce growth and inventory management.
The consumer spending environment is poised to improve as inflation continues to cool, with the possibility of an interest rate cut further boosting discretionary spending. This would benefit Nordstrom, which relies heavily on consumer sentiment for its sales growth. Additionally, the launch of its digital marketplace and a refined inventory strategy focusing on key brands align with its efforts to drive future growth. The marketplace’s unowned inventory model reduces the risk of excess inventory and enhances Nordstrom’s value proposition to both brands and customers.
Nordstrom’s valuation could rise if these catalysts materialize. The company’s FY2024 EPS is projected to range from $1.65 to $2.05, but an improved consumer environment and internal strategic changes could push EPS to the higher end in FY2025. Applying a P/E multiple of 15 would imply a stock price of $30, offering a potential upside of 50%.
Nordstrom, Inc. is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held JWN at the end of the second quarter which was 28 in the previous quarter. While we acknowledge the potential of JWN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as JWN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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