J.C. Penney Falls 9 Percent on Tuesday Over Bankruptcy Rumors

J.C. Penney Falls 9 Percent on Tuesday Over Bankruptcy Rumors
Source: jcp.com/ jcpnewsroom.com

The stock price of J.C. Penney Company, Inc. (NYSE:JCP) suffered a 9% decline to $7.17 per share on rumors that a legal counsel for bankruptcy was hired by the company. The spokesperson of the embattled department store chain denied the speculations saying, “no truth to the rumors,” and the origins of such information were unclear.

J.C. Penney Falls 9 Percent on Tuesday Over Bankruptcy Rumors

According to Reuters, investors are shorting approximately 32% of the shares of J.C. Penney Company, Inc. (NYSE:JCP), which makes the stock price of the department store chain volatile because they are betting against it.

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Schaeffer’s Investment Research noted that the department store chain’s 30-day at-the-money-implied volatility (IV) increased by 13.1% to 84.7%. According to the firm, the put volume is two times higher the normal intraday movement and more than 118 contracts changed hands today. The firm said most of the active puts were out-of-the-money November 7 strike, where 38,000 contracts traded on open interest of 13,000.

J.C. Penney is experiencing difficulty regaining its stock value

The decline of the shares of J.C. Penney Company, Inc. (NYSE:JCP) was caused by speculators who have bearish convictions for the stock. These speculators project that stock price of the company will decline further over the next four weeks.

J.C. Penney Company, Inc. (NYSE:JCP) is experiencing difficulty regaining its stock value since its stock was hard hit by a previous report from Goldman Sachs Group Inc (NYSE:GS) that the company needs to borrow more money to keep its business operations going. At that time, the stock suffered a steep decline.

In response to concerns regarding its liquidity, the board of directors of J.C. Penney Company, Inc. (NYSE:JCP) approved an underwritten public offering of 84 million shares of its common stock for $9.65 per share. The department store chain raised $785 million, which enabled the company to reassure its suppliers and investors that has enough liquidity on hand. The company said it has approximately $2 billion cash on hand until the end of current fiscal year

The equity offering of J.C. Penney will dilute its stock value

Citi Research Deborah Weinswig previously estimated that the equity offering of J.C. Penney Company, Inc. (NYSE:JCP) will dilute its stock value by 44% including the 30-day option for 12.6 million additional shares. She recommended a Sell rating with $7 price target for the stock.  The current trading price of the company is close to reaching Weinswig’s price target.

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