J.C. Penney Company, Inc. (NYSE:JCP) has received a key upgrade from analysts at UBS, who say they see less risk to the company’s first half same store sales and gross margins. In a report dated May 7, 2014, they upgraded the department store chain from Sell to Neutral. They also significantly increased their price target on the stock, nearly doubling it and raising it from $4 to $9 per share.
J.C. Penney looks good now
Analysts Michael Binetti Steven Strycula and K.C. Stumbaugh say the debate is now shifting to the second half. They say J.C. Penney Company, Inc. (NYSE:JCP) has less miss and lower risk on its same store sales. Also the retailer has been reducing the drags from “extremely high clearance levels” and also having 19% of its total square footage under construction during the first half of the year.
The UBS analysts believe during the second half of the year, J.C. Penney Company, Inc. (NYSE:JCP) will again be tested to see whether it is able to bring traffic back into stores and that year over year comparisons will normalize. They say the concerns raised in their January downgrade of the company have been resolved. Currently, same store comparisons will be easy for the retailer, as it’s been struggling over the last several quarters.
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J.C. Penney in the second half
The UBSteam said during the first and second quarters, J.C. Penney Company, Inc. (NYSE:JCP) dealt with significant drags on its same store sales and gross margins due to high merchandise levels. However, by the second half of the year, the retailer should have cleared most of that out and replaced it with legacy brands. As a result, they believe the deep discounting will be ending during the first and second quarters. Improvements in gross margins should come along with the reductions in deep discounts.
The reason they upgraded to Neutral is because they don’t see near-term catalysts which are significantly positive or negative for the stock. They say the risk has shifted to the second half of this year and that they could revisit their rating in the future as the story evolves and they see whether J.C. Penney Company, Inc. (NYSE:JCP) is able to “significantly” improve profitability going forward.
They believe a significant long-term improvement is “embedded in the current share price.