If you’re skeptical of owning J C Penney Company Inc (NYSE:JCP) here, you’re not alone. An effort from Nordstrom, Inc. (NYSE:JWN) to go private just fell through, as it couldn’t secure palatable financing.
And let’s not even talk about the demise of its most direct rival, Sears Holdings Corp (NASDAQ:SHLD), which also seems unable to do anything right. With a retail apocalypse well underway, it’s no real surprise the JCP stock price has shrunk by more than 50% over the course of the past twelve months.
This may well be a case, however, where the market is throwing the proverbial baby out with the bathwater. While most retailers still have problems, JCPenney at least has fewer than it did.
Not all investors agree, of course.
Just know, however, that even the analyst community — the same pros that fear further deterioration of the top and bottom lines for names ranging from Macy’s Inc (NYSE:M) to Kohl’s Corporation (NYSE:KSS) — are saying things are only going to get better (albeit modestly) for JCPenney.
Maybe this is one of those times where investors would be wise to take the collective opinion regarding the fate of JCPenney stock at face value, as well as take note of the pros’ forecasted growth.
The Worst Is in the Past
The backdrop, to be perfectly blunt, is grim. Credit Suisse says JCP is on pace to see 8,640 stores shut down this year and, as of September, announced store closings were nearly twice 2016’s number for the same month. Just this week, debt-rating agency Fitch forecasted $7 billion worth of bond defaults from retailers in 2018. That’s 10% of the industry’s debt.
As incredible as it may sound, however, JCPenney is moving away from the edge of the cliff rather than toward it. The graphics below tell the tale. Here’s the quarterly results, past and projected…
… and here’s the full-year trend, past and projected.
It’s not pretty, but it’s something. The results are enviable to a whole slew of other retailers of JCPenney’s ilk.
Why Will JCP Stock Rally?
As for the “why,” there’s a handful of reasons, not the least of which is the simple fact that JCPenney is surviving while other retailers are shuttering their stores. There’s no denying store traffic is tapering off across the country as consumers opt to do more shopping online. Shoppers are still visiting stores, though, if only to browse. They’re left with fewer and fewer options, though, funneling those patrons through the doors of JCPenney stores.
It’s not just the mere act of sticking around, however. The company is also executing smarter retail strategies. One of them is building a better digital profile of its customers.
In all fairness, Amazon.com, Inc. (NASDAQ:AMZN) didn’t steal business from JCPenney — JCPenney gave Amazon that business by failing to develop a decent omnichannel experience. CEO Marvin Ellison turned the heat up on e-commerce a couple of years ago — and for good reasons. 70% of in-store shoppers peruse the company’s website before stepping foot in a store, and they spend more once they get there.
Ellison is also making bold moves in terms of JCPenney’s merchandise mix. Appliances are back in some stores. The company is doubling down on its Sephora beauty shops. More private label goods are on the radar, even as the retailer works to reduce its reliance on increasingly competitive apparel sales. It’s getting into the toy business at a time when Toys R Us is bowing out.
Survival is half the battle. Though it’s been a slow grind, all the smart, hard work is finally making a difference.
Bottom Line for JCP Stock
It would be easy to doubt the modest optimism. The entire industry is seemingly unraveling and, at first blush, the JCPenney of today doesn’t look too terribly different than the JCPenney of yesteryear.
To its shoppers and patrons, though, there’s been a subtle, yet important, shift — perhaps one that’s taken so long to materialize, they didn’t even notice it initially. It’s happening, though, and at least some analysts have noticed as well; they think the shift is substantive enough to suggest that JCP stock is worth $5.71 per share.
That’s a 58% improvement on the stock’s current price — at a time when too many investors are choosing to see the glass as half-empty when it’s actually half-full. This year’s projected swing to a wide profit is likely to get their attention.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
