J. C. Penney: World-Class Retailer Hits Hard Times

12/22/2017 5:00 am EST


Bill Mathews

Editor & Founder, The Cheap Investor

J. C. Penney Company (JCP), one of the nation`s largest apparel and home furnishings retailers, combines an expansive footprint of approximately 875 stores with a powerful e-commerce site, notes Bill Mathews, editor of The Cheap Investor.

Powering this shopping experience is the customer service of over 100,000 associates across the globe, all driving toward the Company`s three strategic priorities of strengthening private brands, becoming a world-class omni-channel retailer and increasing revenue per customer.

Some of our biggest winners and least speculative recommendations were well-known retail companies that had fallen on hard times, and their stocks had plunged.

Some of those stocks were PetSmart, CarMax, Nautilus, and Office Depot. Those companies restructured, selling low producing divisions or stores, and turned around their financials, causing the stock price to move up significantly over the next few years.

We recommended J. C. Penney in the September issue at $3.77. It moved up slightly to $4.34, and has fallen back to an even more attractive price.

Insiders own about 2% of the 311 million shares outstanding, and 297 institutions own 74% of the float. For the quarter ended September 30, 2017, the top four institutions bought 6.5 million more shares than they sold.

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The company has a good balance sheet with $185 million ($0.60 per share) in cash and a book value of $3.46. Debt is $4.5 billion, but this is not large when compared to its $12.4 billion annual revenue. The negative factor is the low stock price.

Cash and cash equivalents at the end of the third quarter were $185 million. The Company ended the quarter with liquidity of approximately $2 billion. The Company’s fiscal 2017 full year guidance expects comparable store sales to be -1 % to 0 %, adjusted earnings per share should be $0.02 to $0.08 and free cash flow is projected to be $200 to $300 million.

We like J. C. Penney because it’s a well-known, NYSE-traded stock. For the last three years, the stock has ranged between $6.50 and $11.50. The Company is in the process of closing its less-profitable stores and expanding its profitable stores and on-line sales.

While brick and mortar stores have been hurt by on-line sales, J. C. Penney is still a major retail player. We expect the company to restructure, consolidate and eventually return to profitability. When that happens, the stock could move up significantly.

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