by Alyssa Oursler | October 9, 2013 6:31 am
JCPenney (JCP) shareholders finally got some relief Tuesday as JCP stock gained as much as 5% on the day before settling in at fractional gains.
If you still hold JCPenney stock, thank your stars for any quick pops like Tuesday’s, then head for the exits now while you still have a little extra coin from JCP in your pockets.
Don’t be fooled by the small change in direction for JCP stock. JCPenney still faces one helluva challenge to regain its losses, customers and dignity.
JCP stock jumped yesterday because the company sent out yet another upbeat update, saying that it is “making solid progress in its turnaround.”
Optimistic JCP investors honed in on the fact that JCPenney anticipates having ample liquidity at year’s end. I would hope that’s the case, considering JCP — with the help of underwriter Goldman Sachs (GS) — just pulled off a spur-of-the-moment secondary offering that generated approximately $785 million in net cash proceeds … and that sent JCP stock plunging and shareholders suing.
JCP sent out a similar although much vaguer bullish note last week — just before it announced said secondary offering and JCPenney stock slid 10% in one day.
Remember: It’s the company’s job, more or less, to cheer itself on, so taking optimistic press releases at face value hardly makes for a sound investing strategy. And while JCP is touting “improvement,” it’s merely from awful to slightly less awful.
JCP noted, for example, that September same-store sales improved over August and fell 4% year-over-year. For most companies, a 4% year-over-year drop in comps is hardly anything to cheer about … for JCP, it was the lead bullet on a we’re-not-that-bad press release.
Plus, remember just who is driving this JCP turnaround: CEO Mike Ullman. While the infamous stint of former Apple (AAPL) and Target (TGT) exec Ron Johnson is the punchline for JCPenney stock now, Johnson was brought on in the first place because Ullman had already run JCP into the ground. Put another way, the job of getting JCP back to its glory days had already been deemed too difficult for him.
Thus, the job of undoing the damage Johnson inflicted on the retailer and JCP stock seems near impossible — at least for Ullman.
Sterne Agee analyst Charles Grom agrees. Grom downgraded JCPenney stock Tuesday and sliced its price target in half. Grom says his firm “fears that the former CEO Ron Johnson may have permanently ‘fired’ JCP’s core customer.”
The numbers seem to back that theory up:
JCPenney stock is fighting against the current, considering the broader outlook for retail stocks is anything but promising — something Ullman even acknowledged in yesterday’s cheering. American consumers are especially uncertain in the wake of Washington’s standstill and the looming debt ceiling, with the Gallup consumer confidence index suffering its worst weekly drop since 2008 on Tuesday.
Retail in general is a risky bet right now. JCP stock is just a plain-dumb one.
With JCPenney stock worth around one-third of what it was a year ago, it’s time to put what money you have left elsewhere. Bill Ackman’s Pershing Square, as well as Vornado Realty Trust (VNO), have cashed in their Penney chips, while hedge fund and top shareholder Perry Capital dramatically trimmed his JCP stock stake at the end of September.
Investors aren’t going to regain the bulk of their JCP stock losses, so there’s no use sticking around and risking even further downside.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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