Have Analysts Finally Given Up on JC Penney?

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Closing stores and selling assets to boost earnings works for a while, but like all things that can’t go on forever, these won’t either. J.C. Penney Co. Inc. (NYSE: JCP) may have reached that point.

When the company reported earnings last Friday, investors pushed the shares down nearly 14% on the day, and the shares traded down another 5% early Monday morning.

Analysts are weighing in Monday as well, and ratings downgrades and price target cuts are the order of the day. The plain fact is that despite the company’s efforts to turn itself around, there are too many challenges to warrant much optimism.

Analysts are Robert W. Baird downgraded the stock from Outperform to Neutral and cut their price target from $8 to $5. Here’s their comment:

While [Baird] continues to believe mgmt has put JCP on a better path, core EBITDA growth looks more tenuous and valuation expansion is difficult to justify as industry headwinds intensify and earnings quality erodes (cost cuts, asset sales key drivers). As such [analysts] have recalibrated their JCP ests and valuation framework to better align with their cautious stance on the department store sector, yielding their new $5 price target and balanced risk/reward at current levels.

Other changes include:

  • BMO cut its price target from $8 to $6.
  • Citigroup cut its price target from $6.50 to $4.50.
  • Deutsche Bank cut its rating from Buy to Hold and its price target from $9 to $5.50.
  • Susquehanna cut its price target from $8.50 to $6.50 but retained a positive view on the stock.

Credit Suisse analysts maintained their Underperform rating and lowered their price target from $6 to $5, with these comments:

JCP reported continued pressure on topline despite merchandising initiatives and tailwinds from Sephora expansion and appliance addition to stores. Comps were down 3.5% despite higher units per transaction and [average unit retail]. We remain concerned about the company’s ability to generate adequate returns with store comps negative and investments skewed to lower-margin Home, Appliance, and online business. We note that absent a $118M benefit from asset sales in 1Q, we expect organic operating margins down 20bp Y/Y in spite of 130-140 low-margin store closings. We adjust our target price to $5 from $6 and maintain underperform rating.

J.C. Penney stock traded down about 4.7% at last look, at $4.34, after posting a new 52-week low of $4.17 earlier. The stock’s 52-week high is $11.30, and the consensus 12-month price target is $8.57, but that number likely does not include these recent changes.