JCP Stock – Wall St. Loses Faith in JCPenney

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JCPenney (JCP) is one of the most controversial stocks on Wall Street. After JCP stock peaked at over $40 per share in 2012 on hopes of growth under former Apple (AAPL) retail guru Ron Johnson, the company crashed by more than 85% to a low of under $5 per share earlier this year.

jcpenney jcp stockBut JCP stock has “come back” from the lows, if you can call it that, now trading around $10 per share.

Swing traders who bought JCPenney stock at the bottom may be very pleased with themselves, but the bottom line is that buy-and-hold investors have no business owning this battered retailer.

JCP stock is a dog, and Wall Street knows it.

Credit Suisse Pans JCP Stock

jcp stock jc penney store

JCP stock is up about 25% since announcing a new credit arrangement in mid-May. But despite a more secure financial situation than in 2013, when rumors of a JCPenney bankruptcy swirled, analysts at Credit Suisse aren’t buying the battered retail stock.

Here’s what CS analyst Michael Exstein had to say, according to Barron’s:

“The issue of creating a profitable enterprise remains in flux, and we do not think this is reflected in current share price. Significant EBITDA improvement is likely to remain a major challenge for JCP given the likely difficulties in accelerating or sustaining current volume, and without this it will be very challenging to leverage expenses further. To put this in context, in order for these shares to warrant the department store average EV/EBITDA multiple of 6.1x on ’15E, JCP would need to reach $1.3 bn in EBITDA in ’15, when the retailer is still hardly breaking even EBITDA. This $1.3 bn figure is 120% above our ’15E forecast of $578 mn. Furthermore, JCP cannot sustain its reduced annual capex for any length of time without risking its competitive position.

We acknowledge clear progress to date, but we remain very cautious on these shares. Things have changed in the department store industry since JC Penney achieved peak sales (in ’06) and margins (in ’09). The consolidation of the industry and the advent of the importance of FAB to the merchandise mix are two the issues that were not present in ’06 that will now weigh on results for JC Penney. Significant EBITDA remains a challenge given the challenges in generating significant sales volume and its reliance on a store base that may need further rationalization in the future.”

Now admittedly, JCP stock isn’t quite as bad as some other desperate retailers — I’m looking at you, Sears (SHLD) and RadioShack (RSH); SHLD stock is down 43% year-to-date in 2014 with no sign of a bottom, and RSH stock trades for less than $1 and could disappear by 2015 if it can’t secure new financing options.

But clearly Credit Suisse isn’t buying JCP stock right now. And neither should you.

If you own JCPenney stock and have enjoyed the rebound, good for you … but don’t get greedy.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/jcp-stock-jc-penney-credit-suisse/.

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