J.C. Penney Company, Inc. (NYSE:JCP) declared the pricing of a public offering of 84 million shares of common stock at $9.65 per share, raising $811 million in proceeds, last week. The company has given the option to underwriters for 30 days to purchase up to an additional 12.6 million shares. Management is expecting that the offering will help J.C. Penney revive in the third quarter, and remain positive in the fourth quarter.
J.C. Penney said that it is pleased with the rate of turnaround and is seeing the company gaining some traction, providing “greater predictability in its performance across many areas.”
Liquidity concerns alleviated
J.C. Penney Company, Inc. (NYSE:JCP) will gain sufficient liquidity in the holidays with additional $811 million, which removes the short-term risk for shareholders, according to analysts Stephen Grambling and Christopher Prykull from Goldman Sachs. Analysts feel that the market watchers will now concentrate on the pace of the turnaround of the company “where we continue to see bifurcated paths corresponding to a wide risk-reward for the stock.” Analysts decreased their 12 month price target from $14 to $10 and assigned Neutral rating to the stock.
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Analysts have revised the estimates factoring the dilution from the equity offering, as well as, softer same-store-sales in the third quarter. For 2013, analysts expect EPS to come in at ($5.44) from previously ($5.79). For 2014, the revised estimate is of ($1.72) from ($2.03) earlier, and for 2015 the estimate has improved from ($1.05) previously to ($0.97).
Additional liquidity buys time
Analysts Mark R. Altschwager, Blair M. Pircon and Jacob R. Zitter at Baird Equity Research feel that the scenario at J.C. Penney Company, Inc. (NYSE:JCP) should improve from the current position. However, it can be gathered from the latest results that turnaround will take time. Analyst believe the latest offering will give some time to the retailer to make a turnaround, but the offering will further dilute equity holders.
Analysts have suggested the investors to remain on sidelines, as of now, and wait for more developments in turnaround and signs of consumer acceptance.
Turnaround plan for J.C. Penney
Consumers get a range of private and high end brands at attractive prices at J.C. Penney stores. Various brands collections in J.C. Penney Company, Inc. (NYSE:JCP) have increased the footfall and productivity in turn. Earlier in January 2012, management launched a transformational plan for the company, which stretched to four years. The major changes of the expansion plans included “Fair & Square” pricing strategy, which aimed at doing away with layered and frequent discounts, update merchandise by adding brands, removing nonproductive brands, marketing, a new store prototype to be announced in 2013, and an in-store presentation, which included 100 unique shop-in-shops.