With shares of J.C. Penney Company (NYSE:JCP) trading at around $18.22, is JCP an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
J.C. Penney's stock is hurting after a disappointing earnings report. However, the stock isn't getting slammed as many people had expected. As far as Q1 results go, EPS came in at -$1.58 on revenue of $2.64 billion. Last year's Q1 EPS came in at -$0.75. The loss widened. Last year's Q1 revenue was $3.15 billion. Therefore, revenue declined 16.4 percent. Analysts expected Q1 2013 EPS of -$1.06 on $2.74 billion in revenue. Gross margins were 30.8 percent, down from 37.6 percent for the same time period last year. Comps were also down 16.6 percent year-over-year. At least SG&A expenses were down $82 million compared to last year, and J.C. Penney received a $1.75 billion loan from The Goldman Sachs Group (NYSE:GS).
There were many reasons given for the decline in revenue, which included construction and poor marketing strategies. Former CEO Ron Johnson wanted to take a young and hip approach, but he failed to realize that Apple Inc. (NASDAQ:AAPL) customers usually aren't the same as J.C. Penney customers. People who have shopped at J.C. Penney through the years want one simple thing, which is Quality for Less. If you look at previous slogans for J.C. Penney, none of them give a clear indication of what the store is offering. If the concept of the store is to offer Quality for Less, then something along those lines should be considered as a slogan.
Former and current CEO Mike Ullman is saying all the right things at the moment. He wants to bring back many private brands, he wants stabilization, and he wants to go back to the basics. The following is a quote from Mike Ullman:
“Our objective is to put J.C. Penney back on a path to profitable growth. To achieve this, over the past five weeks we have taken critical steps to stabilize the business, including improving our balance sheet and ensuring we have our senior leadership in place. With that accomplished, together our team is focused on developing and executing strategies to enable us to reconnect with our customer and improve traffic and sales, while operating with strong financial discipline.”
We are looking forward, not back, and undertaking initiatives to ensure we have a successful future. We are intensely focused on renewing customer excitement and loyalty through a combination of new attractions and long-beloved brands, with a promotional cadence that customers can appreciate and count on. There is a good deal of work ahead, but by listening to our customers and providing the shopping experience they want, we are confident we will deliver for them and improve performance for the benefit of our suppliers, associates, and shareholders.”
Let's take a look at some numbers before forming an opinion on the stock. The chart below compares fundamentals for J.C. Penney, Kohl's Corp. (NYSE:KSS), and Macy's (NYSE:M).
| JCP | KSS | M | |
| Trailing P/E | N/A | 12.48 | 14.78 |
| Forward P/E | N/A | 10.95 | 10.81 |
| Profit Margin | -7.59% | 5.11% | 4.82% |
| ROE | -27.43% | 15.71% | 22.28% |
| Operating Cash Flow | -10.00M | 1.26B | 2.26B |
| Dividend Yield | N/A | 2.90% | 1.70% |
| Short Position | 33.10% | 8.00% | 2.60% |
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Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Mixed
Aside from the past month, J.C. Penney has underperformed its peers as well as the market for every time frame listed below.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| JCP | 17.38% | -9.54% | -33.35% | -31.76% |
| KSS | 10.51% | 21.97% | 14.23% | 2.82% |
| M | 8.99% | 23.29% | 31.06% | 122.2% |
At $18.22, J.C. Penney is still trading above its averages.
| 50-Day SMA | 15.98 |
| 200-Day SMA | 18.07 |
E = Equity to Debt Ratio Is Normal
The debt-to-equity ratio is close to the industry average of 0.70.
| Debt-To-Equity | Cash | Long-Term Debt | |
| JCP | 0.94 | 930.00M | 2.98B |
| KSS | 0.75 | 537.00M | 4.55B |
| M | 1.15 | 1.84B | 6.93B |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Might Support the Industry
Retailers have been holding on, but consumers aren't exactly rushing out to the stores. Even if the consumer is to strengthen, there is increased competition due to online retailers. However, if this proves to be a real economic recovery, then there is plenty of upside potential.
Conclusion
J.C. Penney management seems to have a clear game plan, which should lead to improved results. This, in turn, will likely lead to stock appreciation. However, this is only the case if the broader market holds. If there is a market correction, then J.C. Penney will suffer a great deal.
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