J.C. Penney (JCP) Stock Already Priced For Recovery - Wells Fargo

May 17, 2013 8:52 AM EDT Send to a Friend
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Price: $7.49 -1.83%

Rating Summary:
    5 Buy, 13 Hold, 9 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 0 | Down: 0 | New: 10
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Based on information provided by J.C. Penney (NYSE: JCP) yesterday, analyst Paul Lejuez of Wells Fargo thinks the company will need additional liquidity in 2014. Additional, he thinks the stock is already priced for recovery.

"We are reducing our FY2013E FCF to a $1.8B drain (vs. previous drain of $1.0B) driven by lower earnings, higher-than-expected capex/inventory/deferred tax assets . . . We The $900MM delta comes from higher-than-expected capex ($150MM), reduced net income ($100MM), an increase in the net deferred tax asset ($300MM), higher expected EOY inventory ($100MM), and a more normalized payable-to-inventory ratio ($150MM)," said Lejuez.

"Even in a scenario where JCP recaptures 75% of sales lost last year (LY), increases gross margin (GM) to 37% (vs. 31% LY), and doesn't grow SG&A dollars, it would earn $1.26 in EPS. The stock is trading at 15x that number, which means the market prices in a recovery already," added the analyst.

Wells Fargo has an Underperform rating on J. C. Penney (NYSE: JCP) with a price target of $10-$11.

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 $18.79 yesterday.


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