Goldman Sachs Comments on J. C. Penney (JCP) Q4

February 27, 2014 9:02 AM EST
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Price: $6.85 +2.39%

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J. C. Penney (NYSE: JCP) stock gained after the company reported Q4 results that were better than feared. Commenting on developments, analyst Stephen Grambling of Goldman Sachs said he continues to have concerns.

"The 4Q results were better than feared after the January sales release saw a sharp deterioration across the top-line and gross margin guidance was pulled. While explicit EPS and EBITDA guidance were not provided, management indicated visibility for a self-funded recovery is on the horizon. In our view, all eyes now turn to management's ability to execute on its guidance, which has lost some credibility amidst the volatility in fundamentals vs. their guidance throughout 2H13," said Grambling.

"While shares may rally on a better than feared report, we continue to have outstanding concerns: 1) if merchandise margins are back at 2011 levels on
"good" product and discontinued brands were only a 190bp headwind, what else is pressuring gross margin vs. history; and 2) with c. $390mn in interest expense and $4bn in SG&A, JCP would require $4.4bn+ in gross profit or a high 30% margin to generate positive EBITDA on LSD-MSD comps. Furthermore, the stock trades at 6X an upside EBITDA of $1bn, a premium to peers. Our price target and estimate are under review," he added.

Goldman Sachs has a Neutral rating on J. C. Penney.

For an analyst ratings summary and ratings history on J. C. Penney click here. For more ratings news on J. C. Penney click here.

Shares of J. C. Penney closed at $5.96 yesterday.

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