Starboard Value’s Jeff Smith recommends Macy’s

It looks like Macy’s is the next target of activist hedge fund Starboard Value and its chief Jeff Smith. Mr. Smith, speaking at CNBC’s Delivering Alpha conference in New York, didn’t say how big of a stake Starboard has taken.

Smith said that he thinks the stock can run higher to as much as $125 per share and more, CNBC reports.

“The Macy’s operating business is actually free”, he said.

“We believe they are open to looking into this alternative and recognize there is a really good opportunity with the real estate today”, Smith said. “We are now evaluating those structures including analyzing the various economic, tax, operational and other issues associated with them”.

The company added that it has worked to boost shareholder returns through stock buybacks, increased dividends and investment in its business. It trades in line with its peers, but it doesn’t “tell the whole story”.

Smith’s Starboard Value has been involved in a number of high profile activist efforts in recent months, including successfully replacing the entire board of directors at Darden Restaurants, pressing Yahoo! Macy’s had indicated it would explore options, but people familiar with the matter have said it was wary of long-term leases.

Smith pointed out some of the retailer’s valuable real-estate holdings (trophy properties such as Herald Square and high-end malls). The sale-leaseback transaction could allow Macy’s to continue controlling the stores.

Macy’s flagship Herald Square store in New York alone was worth $4 billion, by Starboard’s estimate, while properties in San Francisco and Chicago were worth over $1 billion.

Smith pointed out that the retailer’s stock now trades around $US66 per share.

Founded in 2002, the firm manages more than $3 billion.

Adjusted for real estate value, shareholders are getting the rest of Macy’s for less than 3x EBITDA, he said.