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Analyst: 'Show Me Story' Continues At JC Penney

Wayne Duggan

In a recent report, analysts at Deutsche Bank gave their updated outlook for J C Penney Company Inc (NYSE: JCP) 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.

Investors Skeptical

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.

Related Link: Morgan Stanley Doubtful JC Penney 'Will Make Money Again'

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.

Outlook

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.

Latest Ratings for JCP

Date Firm Action From To
Jan 2015 Deutsche Bank Maintains Hold
Dec 2014 Goldman Sachs Downgrades Neutral Sell
Nov 2014 Morgan Stanley Reiterates Underweight

View More Analyst Ratings for JCP
View the Latest Analyst Ratings

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