UPDATE: UBS Downgrades J. C. Penney (JCP) to Sell
Get Alerts JCP Hot Sheet
Rating Summary:
1 Buy, 21 Hold, 11 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 18 | New: 17
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UBS downgraded J. C. Penney (NYSE: JCP) from Neutral to Sell with a price target of $5 (from $10). Analyst Michael Binetti said the bull case is "unwinding" and he thinks it's becoming clear the stock is pricing in an overly-bullish scenario.
"In our view, JCP's target of $1.2B in EBITDA by '17 (based on 3 straight yrs of +5.4% SSS growth & flat SG&A dollars) is overly optimistic given that we expect the dept store industry to grow at a +2% CAGR over the next 3 yrs. In our view, JCP simply did not present enough merchandise newness at its analyst day for us to believe in a scenario with several years of share gains from strong competitors like Macy's/Kohl's. And as we've long feared, as YOY comparisons are "normalizing", current SSS trends are decelerating (3Q SSS slowed to +LSD vs +MSD guidance). We're disheartened that SSS are decelerating already and traffic remains negative after $6B in lost sales since 2010," said Binetti.
"From our prior 2017 EBITDA forecast of $800m, we're adding +$400m to reflect JCP's plan to hold SG&A dollars flat through '17. That said, we are reducing our '15E-'17E SSS estimates to +4% in each year (from +5% previously, and below JCP's guidance for a +5.4% 3-yr SSS CAGR)—bringing our '17E EBITDA to ~$1B (below JCP's $1.2B target). While the net effect raises our EBITDA from $800m to $1B, the quality of this increase is low based on lower SSS and little detail on how JCP will contain SG&A," he added. " With the range of potential EBITDA scenarios becoming more definable, we're shifting to a blended EV/EBITDA & EV/Sales methodology (previously just EV/Sales amid negative EBITDA). Our $5 target is based on: 1) $5 using EV/EBITDA (~5.5x our $1B EBITDA est by '17, discounted back at 10%); and 2) $6 using EV/Sales (0.5x lowered '16 sales ests)."
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 $7.12 yesterday.
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