JCP Market Research & Analysis Report
Updated Nov 11, 2013

Growth and Balance Sheet

The company reported a loss of $586 million, or $2.66 earnings per share, for the second quarter of fiscal year 2014 ending August 3. That's down from loss of $147 million or 67 cents earnings per share for the same quarter last year. Revenues for the third quarter were $2,663 million, down from $3,022 million for the same quarter last year. What is more of a concern is that out of the $359 decline, $356 is comparable store sales decrease. Gross margin was 29.6% in comparison to 33.2% for the same quarter last year. The decrease was primarily due to change in the merchandise sales mix, which includes higher level of clearance merchandise sales during this quarter. Selling , general  and administrative expenses decreased $24 million, or 2.3% in comparison to the same quarter last year, and it is a result of  the  cost saving initiative of the company. Operating margin was -14.8% compared to -6.1% for the same quarter last year. JCP forecasted EPS for the third quarter of fiscal 2014 ending October are from -$2.17 to -66 cents, compared to -56 cents in the third quarter of fiscal 2013. The financial strength indicators of the company are at alarming levels. The current ratio of the company is  1.42,  and the industry average ratio is  1.16.  The quick ratio of 0.53  is  worse  than the average for the industry of  0.98.  The long term debt to equity ratio of 212.11 is at worse levels than the average for the industry of 59.32. Moreover, the interest coverage ratio of 0 is at worse levels than the industry average of 7.75. In terms of efficiency, the inventory turnover ratio of  2.81 is at much worse levels than the average for the industry of  11.89; however, the  asset turnover ratio of 1.08 is leveled with the industry average of 1.06.

Valuation

JCP  PE  current ratio is negative  due to the prolonged negative earnings per share.  Over the last five years, the company’s shares have traded in the range of  4.67x to 51.07x trailing 12-month earnings. JCP's current Price/Sales of  0.15  is  below the average of its industry of 2.89, depicting how low  the opinion of marketing participants in JCP is.  JCP’s head to head comparison to its main competitors  show  that the company  has  lowest  gross margin,  and lower than the  industry average;  moreover,  the company’s operating margin is negative. The quarterly revenue growth of the company is also negative, but competitors’ growth is not much better either. The stock trades at a  lower  P/S ratio  than  main competitors.  The stock is currently trading  below  its intrinsic value of $30.57,  this suggests that the stock  is  currently undervalued  at these levels. The beta of  1.01  implies  same  volatility of the stock with respect to the S&P 500.  JCP  has  not  shown  favorable  earnings consistency over the last five years.  Moreover, JCP’s earnings per share over the last five years have  decreased substantially and are currently negative. The current quarter earnings in comparison to the same quarter last year  have also decreased  a lot.  The company Total Debt to Equity of  250.91  is  well  above  the required maximum,  and  it is  also above  the industry average of  86.31. JCP’s current price levels are  above  the  maximum level, 64.37% below the 52 week high of $23.10, and the technical indicators are  negative. The majority  of the analyst ratings are outperform and hold.  JCP does not pay dividends currently.

About JCP

J. C. Penney Company, Inc. (jcpenney), is a holding company. The Company is a retailer, operating 1,102 department stores in 49 states and Puerto Rico as of January 28, 2012. Its business consists of selling merchandise and services to consumers through its department stores and through its Internet Website at jcp.com. It sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products through Sephora inside jcpenney and home furnishings. As of January 28, 2012, its supply chain network operated 27 facilities at 18 locations, of which nine were owned, with multiple types of distribution activities housed in certain owned locations. Its operating subsidiary is J. C. Penney Corporation, Inc. In November 2011, it completed acquired the worldwide rights for the Liz Claiborne family o f trademarks and related intellectual property, as well as the United States and Puerto Rico rights for the Monet trademarks and related intellectual property.

Competitor Comparison

J. C. Penney Company, Inc. (NYSE:JCP) N.V.

Highlights

J. C. Penney Company, Inc., through its subsidiary, J. C. Penney Corporation, Inc., operates department stores. The stock closed yesterday’s trading session at $8.23. In the past year, the stock has hit a 52-week low of $6.24 and 52-week high of $23.10. The intrinsic value of the stock is above the current price.  JCP has a market cap of $1.88billion and is part of the Services sector

• Wide products and services offerings  
• Balanced brand portfolio

• Limited market share opportunity  
• Continuous products recalls
• Management shake-ups

JCP Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading  within 10% of their 52-week highs, as it is likely to continue in its upward trend. JCP's 52 week high is $23.10, current price is $8.23, is 64.37% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a negative P/E.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.19% of JCP stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

JCP  is trading in the range of $6.24  -  $8.71  in the past 30 days. The stock has been showing support around the level of $6.50 and resistance in the $19 range. The stock is trading  below  the 50-Day Moving Average and  below  the  200-Day Moving Average. The RSI(14) is 49.87. As can be seen from the graph on page 1,the stock has been  falling since July  (red  line).  In fact  this downtrend is  present since February 2012, when the stock  was trading around $42.  The stock is currently trading  at lowest levels in recent history, last time it was trading at low levels as is now, was in  November 2010.  Looking at a longer period chart of the stock it is observable that the stock has broken down a very long neck and shoulder formation  and it seems  that  the company is not finding any major support  level. Our indicators give a negative view of JCP.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 1 Buy, 14 Hold, 5 Underperform, and 1 Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. JCP’s annual EPS for the last 5 years were  2.57, 1.08,  1.63, -0.7, and -4.49this type of earnings action is not favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry.    JCP’s  Total Debt/Equity  250.91  is  above the required maximum, and it is above the industry average of 86.31.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention.  JCP’s  EPS growth  for this quarter relative to the same quarter a year earlier is -400%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%.  JCP’s annual earnings growth rate over the past five years is 
-233.85%, below the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.