ValueWalk takes a look at J.C. Penney Company, Inc. (NYSE:JCP)’s news action this week. A lot, mostly positive, seems to be happening at the beleaguered retailer, but could it all lead to a turnaround?
Significant events
On Monday, October 7, the J.C. Penney Company, Inc. (NYSE:JCP) stock plumbed a nadir of $7.59, said to be the lowest in over 30 years.
Tuesday, analysts at Sterne Agee made a U-turn on their hitherto bullish stance on the retailer and downgraded their rating to Neutral; they also trimmed the PT to $9.
JCP issued an update on progress of turnaround
Shortly afterwards that day, J.C. Penney Company, Inc. (NYSE:JCP) issued an “Update on Progress of Turnaround,” and said comparable store sales were encouragingly up 580 bps over August, though down versus last year. Online sales were up 10.8 percent in August and up 25.3 percent in September, while inventory in key private brands and basics were restored to appropriate levels. Year-end liquidity was expected to be over $2B given the public offering last week and credit facilities. The company was moving aggressively to fix its Home strategy, and had filled up key managerial positions. The stock touched an intra-day high of $8.25 that day.
Laybourne stepped down from J.C. Penney board
Wednesday, October 9, the company announced its appointment of Stephen I. Sadove, a highly respected leader and innovator in the retail industry, to its Board of Directors. Sadove is currently chairman and chief executive officer of Saks Incorporated. He also serves on the board of directors of Colgate-Palmolive and Ruby Tuesday and as chairman of the board of the National Retail Federation and chairman of the board of trustees for Hamilton College. He holds an MBA with distinction from Harvard Business School. On the other hand, Director Geraldine B. Laybourne stepped down from the J.C. Penney Company, Inc. (NYSE:JCP) Board. The media speculates that Sadove could install a hand-picked executive team in 2014. JCP moves to fill its long-vacant CIO position, naming Scott Laverty.
The Cape Ratio Weekly says J.C. Penney Company, Inc. (NYSE:JCP) has the lowest CAPE Ratio in the S&P 500 (INDEXSP:.INX).
The Sell Side View
Goldman Sachs analysts Stephen Grambling and Christopher Prykull responded to JCP’s corporate update by lowering their EPS estimates. FY13/FY14/FY15 EPS estimates move to ($6.34)/($1.73)/($1.10) from the previously estimated ($5.44)/($1.72)/($0.97). The firm lowered its 12-month PT from $10 to $9 and rates J.C. Penney Company, Inc. (NYSE:JCP) at Neutral, citing “weaker gross margin trajectory,” and commenting, “a sharp positive trajectory will still be required to see upside for equity holders particularly, given ongoing gross margin pressure related to fixing the new home set and returning to a more promotional cadence.”
The new promotional cadence at J.C. Penney Company, Inc. (NYSE:JCP) is already evident, say analysts Paul Trussell and Matt Siler at Deutsche Bank Markets Research in their Promo Watch report of October 8. Noting “intense promotional activity,” the retailer “held nearly both hands full of events last week, twice the count in 2011 and comparing to no promotional activity last year.” DB has a Hold rating on J.C. Penney Company, Inc. (NYSE:JCP).
At the time of writing, J.C. Penney Company, Inc. (NYSE:JCP) is trading pre-market at $8.06 (+$0.17, +2.15 percent).
