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May Department Stores: Shopping for New Leadership

The stock of May Department Stores Co. (MAY) was on the move Tuesday as investors cheered the prospect of new leadership for the company.

May, which operates such stores as Hecht's, Lord & Taylor and, since July 2004, Marshall Field's, announced the resignation of CEO and chairman Gene Kahn on Friday.

Investors had pushed the stock up almost $4, or 13%, before the bell sounded Tuesday morning.

Analysts at several investment firms agree that Kahn's leadership was disappointing. Over the past several years, say JP Morgan analysts, the company has fallen "severely" behind other department stores, even though it was "historically a leader in its industry." Kahn assumed the top post in 2001.

New management could help May realize improved earnings power, according to analysts. "We see significant earnings upside potential ... now that there is hope of operating improvement," says JP Morgan. Analysts there upgraded the stock to "outperform" on Tuesday.

Banc of America analysts also upgraded the stock, to "buy." They foresee two scenarios for the company: May could hire a CEO to turn the company around, or it could be taken over by another firm, most likely rival Federated Department Stores. Either way, they say "there is little downside to the story."

Banc of America says that if a turnaround happens, it will be gradual, probably taking a couple of years.

In the meantime, JP Morgan analysts say, the stock's above average dividend yield of 3.48% could be attractive to "patient investors."

At $32, May sells for about 15 times the $2.10 that analysts, on average, believe the company will earn in 2005, according to Thomson First Call.

--Lisa Dixon

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