J.C. Penney Assigned ‘Hold’ By Deutsche Bank

By Mani
Updated on

Despite posting solid results for November, J.C. Penney Company, Inc. (NYSE:JCP) gets a Hold rating from Deutsche Bank AG (NYSE:DB) as its analysts doubt whether the retailer can improve its results any further.

Paul Trussell and Matt Siler of Deutsche point out that J.C. Penney Company, Inc. (NYSE:JCP) grew same store sales by 10.1%, beating analyst’s expectations for +9.0%.  The analysts note the retailer’s strength was mainly driven by improved store traffic and conversion as well as continued strength in online sales.

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November could be its peak

While applauding J.C. Penney Company, Inc. (NYSE:JCP)’s management for the progress in its turnaround efforts to date, Deutsche Bank AG (NYSE:DB) analysts point out that November 2013 numbers are not comparable with previous periods. For instance, the analysts point out the retailer faced challenges in November 2012 from super storm Sandy and not having a promotional strategy for Black Friday.

Deutsche analysts doubt whether the retailer’s results can actually get better from here. The analysts believe same store sales may moderate from here as the retailer cycles through home clearance and Friends & Family events last December, deep discounting in January 2013 to make room for Joe Fresh and the return of its promotional strategy in March / April.

While Deutsche analysts’ SSS estimates are solid on a relative basis, the analysts point out the estimates fall well short of returning JC Penney to a $15 billion plus sales entity. The analysts believe sales of such magnitude are needed for the bull case to continue at current levels.

In view of the above, Deutsche Bank AG (NYSE:DB) analysts assigned a Hold rating to J.C. Penney Company, Inc. (NYSE:JCP) and are pegging the price target at $6.00.

J.C. Penney gets Underperform rating from BMO

Wayne Hood of BMO Capital Markets notes J.C. Penney Company, Inc. (NYSE:JCP)’s e-commerce sales in November continued to be strong and in line with the 37.6% recorded in October. The analyst points out that management is encouraged by the early performance of its giftable items, pointing to strength among its private brands such as Modern Bride, St. John’s Bay and a range of national brands.

The BMO analyst believes regular promotional priced goods of J.C. Penney continued to move more effectively during the month as opposed to clearance items, which is encouraging.

The analyst points out last year, the retailer’s traffic was down 17% in the fourth quarter and conversion was down 10% largely due to the retailer’s failed pricing strategy. However, the BMO analyst points out the composition of the comp (traffic / ticket), average unit retail and gross margin rate are not known for the retailer.

The BMO analyst assigns an Underperform rating to J.C. Penney Company, Inc. (NYSE:JCP) with a target price of $7.00.

Baird increases its price target

Mark R. Altschwager and team at Baird Equity Research note J.C. Penney Company, Inc. (NYSE:JCP)’s strong November performance was supported by a return of key brands and effective promotions. Despite the competitive environment and spending pressure on consumers, the retailer notched a strong Black Friday weekend.

Baird analysts would look to become more constructive on J.C. Penney Company, Inc. (NYSE:JCP) as liquidity concerns abate for the retailer and the company sustains improvement.

Baird analysts raised J.C. Penney Company, Inc. (NYSE:JCP)’s price target to $11 reflecting 0.6x EV/sales, equal to current levels. The analysts also maintained their Neutral rating on the retailer.

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