The past few years have been brutal for JCPenney (JCP) shareholders. JCPenney has been struggling with weakening sales figures for some time, and as a result JCP stock is down nearly 10% over the past 12 months, 30% over the past 24 months and 55% over the past five years.
Sales from fiscal 2011 to fiscal 2014 had been on a downward slide: From $17.75 billion in 2011 to $11.85 billion in 2014.
Then in 2015, revenue finally turned around and came in slightly higher at $12.25 billion.
Earnings per share followed a similar path: From $1.59 per share in 2011, down to a loss of $5.57 in 2014, which was nearly halved to $2.53 in 2015.
The improvements in 2015 were the first signs by JCPenney that the company may actually be able to right the ship, but I was still skeptical.
My main concern was that with Mike Ullman, former CEO and Chairman of JCPenney from 2004 until 2011, JCP would continue to operate in its same old ways, and thus sales would weaken, if not decline, leading to perhaps another Ron Johnson fiasco.
That began to change, though, when earlier this summer Marvin Ellison, a former Home Depot (HD) executive, was announced as the successor to Mike Ullman. With the entrance of Ellison, JCP stock has already risen higher.
And a number of recent analysts upgrades has pushed JCP’s stock price higher by more than 10% since Aug. 31 (the date of the last analyst upgrade).
In early August analyst Matt McGinley from Evercore upgraded JCP stock from “sell” to “hold” and stated that possible capital structure changes could help reduce debt and JCP’s burdening interest expenses. Matt wrote:
“If JCP were to sell stores and pay down debt, it could materially alter the capital structure.”
Management has stated that it believes it can increase profits through cost cutting. Reducing JCP’s debt load would be an easy way to do just that while making the biggest difference, considering JCP is currently sitting with a long-term debt to capital ratio of 73%.
The most recent upgrade came on Monday from Deutsche Bank, which changed its rating from “hold” to “buy.” The analyst, Paul Trussell, believes JCPenney could see margin expansion with very little comp growth. This is expected to be realized by taking a deep look at corporate overhead and reducing advertising spend. Trussell also stated that “improved footwear presentation” is helping sales, while Sephora is still driving sales growth. Other opportunities include cross merchandising and online sales.
Personally, I’m beginning to believe more in the JCPenney turn around; and based on the recent price movement of JCP stock, it would seem others on Wall Street are in agreement. That is not to say that JCP stock is an all-out buy today, but investors willing to take some risk and deal with short-term price volatility may want to start building a position in JCP stock.
As of this writing, Matt Thalman was long Apple and Home Depot. Follow him on Twitter at @mthalman5513.