J. C. Penney (JCP) Results Solid But Analyst Concerned of Possible Slowdown; Deutsche Bank Comments Following Q2 Print
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Deutsche Bank maintained a Hold rating on J. C. Penney (NYSE: JCP) with a price target of $10. 2014 EPS estimated were raised to -1.99 vs -2.51 prior. Analyst Paul Trussell said Q2 performance was strong, but he is concerned of a potential slowdown.
"JCP showed solid trends in its 2Q print, with SSS of 6.0%, a 650 bps improvement YOY in Gross Profit Margins to 36.0%, and strong SG&A control - as SG&A $ were actually down ~6% YOY. Also impressive, JCP produced $90M in EBITDA (its best showing since 2Q12) and the company generated positive FCF of $76M as well. With SSS in the last week of July up double-digits, there is seemingly solid momentum in JCPenney’s business," said Trussell.
"3Q guidance raised an eyebrow for us as SSS are expected to maintain their current growth level despite tougher compares (by 710 bps), GPM is not expected to experience sequential improvement (following a ~300 bps gain from 1Q to 2Q), and SG&A expenses are expected to rise in the back half with higher advertising spending and the first incentive payouts in some time. With the sustainability of the 2Q trends in question, we remain on the sidelines and await execution against tough compares or a compelling strategic plan outlined in October at the investor day. At $10, we believe the stock is fairly valued discounting back 8.0x our 2016 EBITDA estimate of $901M," he added.
Shares of J. C. Penney closed at $9.74 yesterday.
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