In a recent report, analysts at Deutsche Bank gave their updated outlook for J C Penney Company Inc JCP 6.8% following the company’s disappointing Q4 earnings report. Analysts have not been impressed by JC Penney’s recent turnaround efforts and believe that the “show me story continues” for the company.
Analysts point out several reasons investors remain skeptical of JC Penney’s long-term potential, including its highly-levered business model and its weak growth record. In addition, there has been no indication that the company’s real estate can be monetized any time soon, so shareholders must remain patient and look for operational improvements for the time being.
Despite the skepticism, analysts point out several positive takeaways from earnings, such as higher than expected free cash flow (FCF), improving clearance mix and margins, solid overall inventory numbers and better-than-expected sales.
Conference Call Notes
According to management, JC Penney is outperforming sales expectations so far in February despite bad weather and West Coast port disruptions. Women’s apparel was a top-performing segment and achieved significant online sales growth.
After pilot testing showed positive results, the company will begin devoting more footwear floor space to women’s. The kids segment is also continuing its positive momentum. The company also discussed the development of a buy online, pick-up in-store same-day service.
JC Penney announced same store sales (SSS) growth guidance of 3-5 percent for 2015. Deutsche Bank is predicting 3.8 percent SSS growth, up from previous estimates of 3.5 percent.
Deutsche Bank has a Hold rating on JC Penney and a $9.00 target on the stock, both of which are based on a 6.5x multiple on a 2017 EBITDA forecast of $1.026 billion.
The stock is down more than 7 percent in early trading on Friday after rising more than 30 percent so far in 2015.
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