Some Store Chains May Be Ripe for the Picking

Saks Inc., J.C. Penney Co., Dillard’s Inc. and Nordstrom Inc. are among potential takeover targets for rival department store chains, mainly because of their low stock prices, a PaineWebber Inc. retail analyst said Monday.

May Department Stores Co. and Federated Department Stores Inc., which bulked up through acquisitions in the 1980s and early ‘90s, could lead the next wave of consolidation, said Jeffrey Edelman, who raised his rating on May shares to “buy” from “neutral” and reiterated his “buy” rating on Federated.

Shares of Saks, J.C. Penney and Dillard’s each trade at less than 4.5 times estimated 1999 cash flow. Nordstrom trades at a relatively low 6.1 times cash flow. All four stocks have declined this year, ranging from 28% for Nordstrom to more than 60% for J.C. Penney, one of the 10 worst performers in the Standard & Poor’s 500 index.

“In an environment where it’s hard to build, it might be easier to acquire assets,” Edelman said. “Any one of the public companies that are selling at such low cash-flow levels could be potential acquirees.”

He raised his rating on Saks shares to “attractive” from “neutral,” with a 12-month target price of $18.50. The stock, down 50% in 1999, rose 25 cents on Monday to close at $15.81 on the New York Stock Exchange. Edelman kept his “neutral” rating on Dillard’s, a “buy” on Nordstrom and an “attractive” on J.C. Penney.

Shares of Federated, whose chains include Macy’s, Bloomingdale’s and Burdines, slipped 13 cents to $47.63, while May eased 25 cents to $30.50. Edelman has a 12-month target of $40 for shares of May. The St. Louis-based company owns Lord & Taylor, Hecht’s and Robinsons-May.

“We’ve indicated in the past that we are and continue to be interested in acquisitions,” Federated spokeswoman Carol Sanger said. “It would have to be of a size big enough that it would make a difference, or acquisitions of a smaller nature, where you cherry-pick stores in areas where you want greater concentration.”

Nordstrom and J.C. Penney declined to comment and officials of Saks, Dillard’s and May couldn’t be reached. Nordstrom shares fell $1.06 to $23.88, J.C. Penney dropped 50 cents to $18.06 and Dillard’s dipped 44 cents to $19. All trade on the NYSE.