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J.C. Penney Company, Inc. Has Worst-In-Class Investor Sentiment

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Even though its stock price recovered somewhat in March, J.C. Penney Company, Inc. (NYSE:JCP) is still facing rock bottom investor sentiment. With Easter just two weeks away, the entire sector could benefit from higher sales this month, but economic discontent still points to a tough road ahead for J.C. Penney and other cost-conscious retailers.

J.C Penney has sector’s highest short interest, PE discount

“As of yesterday, J.C. Penney Company, Inc. (NYSE:JCP), The Fresh Market and Family Dollar rank at the bottom of the Sterney Index,” write Sterne Agee analysts Charles Grom, Renato Basanta, and John Parke in an April 4 report. “RSI has improved recently for both TFM and JCP, but their rankings continue to be dragged down by the other three metrics.”

The Sterney Sentiment Index, which looks at stock performance, short interest, sell-side Buy ratings and P/E multiples relative to competitors, ranked Macy’s, Inc. (NYSE:M), Target Corporation (NYSE:TGT), Costco Wholesale Corporation (NASDAQ:COST), and Dollar General Corp. (NYSE:DG) as having the highest sentiment in the broadlines retail sector (at least within Sterne Agee’s coverage universe), and J.C. Penney Company, Inc. (NYSE:JCP) came in dead last with the highest amount of short interest, the second lowest analyst rating (after Family Dollar Stores, Inc. (NYSE:FDO)) and the biggest discount to average PE.

Easter could drive sales, but confidence still low

Easter weekend sometimes drives an enormous surge in same store sales (SSS); in April 2011 SSS were up 770 basis points over March, and in April 2006 SSS was up 440 bp over the previous month. “We expect a nice acceleration in April’s monthly performance at the department stores this year, especially considering the more winter-like weather we experienced for much of March,” write Grom, Bansata, and Parke.

But even if J.C. Penney Company, Inc. (NYSE:JCP) manages to get a good share of the extra traffic that weekend, the lack of consumer confidence among middle class consumers will make it difficult to increase sales over the course of the year. The Gallup Economic Confidence Index, which averages Americans’ view on the economy as it is now and whether they think it is improving, has stabilized and bifurcated. The Index hit -18 in the last week of March, beating a six-month average pf -21, but this is mostly because of growing confidence among people earning at least $90,000 per year. The GEC Index for this higher income group alone was –7 at the end of last month.

Any retailer that relies on middle class customers for the bulk of its sales will have to address the fact that most of its target audience aren’t that eager to spend money right now, and going too far with discounts only puts more pressure on J.C. Penney Company, Inc. (NYSE:JCP)’s margins.

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