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J. C. Penney (JCP) Bull Case $20, Bear Case $1 - Goldman Sachs

September 27, 2013 9:37 AM EDT Send to a Friend
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Price: $10.85 -1.9%

Rating Summary:
    5 Buy, 16 Hold, 6 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 14 | Down: 14 | New: 19
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Goldman Sachs maintained a Neutral rating on J. C. Penney (NYSE: JCP) and lowered its price target to $10.00 (from $14.00). Analyst Stephen Grambling thinks focus will turn from liquidity to the retailer's turnaround potential.

"The incremental $811mn should provide ample liquidity throughout the holidays, alleviating any near-term concerns from various stakeholders. However, we expect all eyes will now turn to the cadence of a potential turnaround where we continue to see bifurcated paths corresponding to a wide risk-reward for the stock," said Grambling.

Grambling outlined two scenarios for the retailer. In one case, the stock rises to $20. In the other, it declines to $1.

"Upside case ($20): comps accelerate to double-digit levels, consistent with JCP.com currently, and gross margin recovers to historical levels >37% in FY14. We apply a 6X EV/EBITDA multiple on FY16 and discount back two years."

"Downside case ($1): comps remain negative in FY14 before stabilizing, gross margin takes five years to normalize, and aggressive cost cuts are needed to manage the new sales levels. In this scenario we apply a 5.0X EV/EBITDA multiple on FY19 and discount back five years." said Grambling.

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 $10.42 yesterday.




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