New Path Froward - What does it mean for the stock price?
So, Ullman is refocusing the strategy away from share price to survival of JC Penney. He's talking about store closures and becoming profitable. He waited a few months too long but at least it's now happening and that's good and bad news for shareholders. The good news is he's not going to run this into bankruptcy without a fight so your shares will be worth something most likely. But what?
When you close stores, you limit revenue growth. So, any hope of returning to $30-$40 again are gone. Throw in the 1/3 dilution and the best case scenario turn around, after the store closures, are really much more limited than people realize. It will depend on how many stores are closed. I imagine it will be 1/3 or about 300-450. So if the former, healthy JCP was trading at 40, lop off 1/3 for dilution and the $40 is now $27. Lop off another 1/3 for store closure/loss of revenue and you're down to $18. Figure in all the debt they took on and the limited ability now to produce revenue and that number comes down to the low teens.
My guess is they find a way to make it profitable and avoid bankruptcy, but it's no guarantee. So, I think it trades below $5 and waits to see what the plan is to close stores and how quickly it can then become profitable and out of bankruptcy risk. Then we see a pop back up to $8 and performance will dictate price action from there through Feb-August of 2014.