Even With 'Fairy Tale' Year, JCPenney (JCP) is Too Expensive - Analyst
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Rating Summary:
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Up: 13 | Down: 14 | New: 11
Rating Summary:
1 Buy, 21 Hold, 11 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
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Wells Fargo is out with a few comments on JCPenney (NYSE: JCP) into the retailer's Q1 results.
Though JCPenney sports a current market cap of about $4.2 billion, which is 38 percent lower than its average market cap in 2010, Wells says to not be fooled. Focusing on market cap alone misses the fact that there has been a wealth transfer from equityholders to debtholders. The firm commented, "If we use its pro forma net debt of $3.2B (which JCP cited in its 5/13 8K to reflect the $1.3B in net
proceeds from its pending $1.75B debt deal), its current EV is $7.4B, which is very similar to the average EV in 2010 of ~$7.7B. In other words, the enterprise is just as highly valued today as when EPS grew by 56% and earned $1.68 (they lost $4.40 LY), had positive comps, and had ~$5B more in sales."
Looking at 2010, it was a rebound year for JCPenney. CEO Mike Ullman led the company to post positive comp gains of 3 percent while gross margin hit a peak of over 39 percent and EBIT margin was 4.9 percent.
For 2013, Ullman is back in charge, but he has $5 billion less in sales to work with, losing about 25 percent in 2012 alone. Gross margin was about 31 percent while EBIT margin was down 10 percent.
Wells sees JCPenney burning through about $400 million to $500 million this year alone and, given the $1.3 billion in net proceeds from its recent debt deal, that leads to a market cap of $7.9 billion by the end of 2013. That would mena a higher valuation now than in 2010. The firm said even a "fairy tale" year wouldn't help out JCPenney. Assuming the retailer recaptures about 75 perccent of lost sales in 2012 and hit gross margin of 37 percent, that would lead to EPS of about $1.26. Shares are currently going for just over 15 times that number at today's range.
Wells has JCPenney at Underperform with a valuation range of $10 to $11. Its looking for Q1 loss of $1.06 per share.
JCPenney is indicated for a higher open Thursday.
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 $18.97 yesterday.
Though JCPenney sports a current market cap of about $4.2 billion, which is 38 percent lower than its average market cap in 2010, Wells says to not be fooled. Focusing on market cap alone misses the fact that there has been a wealth transfer from equityholders to debtholders. The firm commented, "If we use its pro forma net debt of $3.2B (which JCP cited in its 5/13 8K to reflect the $1.3B in net
proceeds from its pending $1.75B debt deal), its current EV is $7.4B, which is very similar to the average EV in 2010 of ~$7.7B. In other words, the enterprise is just as highly valued today as when EPS grew by 56% and earned $1.68 (they lost $4.40 LY), had positive comps, and had ~$5B more in sales."
Looking at 2010, it was a rebound year for JCPenney. CEO Mike Ullman led the company to post positive comp gains of 3 percent while gross margin hit a peak of over 39 percent and EBIT margin was 4.9 percent.
For 2013, Ullman is back in charge, but he has $5 billion less in sales to work with, losing about 25 percent in 2012 alone. Gross margin was about 31 percent while EBIT margin was down 10 percent.
Wells sees JCPenney burning through about $400 million to $500 million this year alone and, given the $1.3 billion in net proceeds from its recent debt deal, that leads to a market cap of $7.9 billion by the end of 2013. That would mena a higher valuation now than in 2010. The firm said even a "fairy tale" year wouldn't help out JCPenney. Assuming the retailer recaptures about 75 perccent of lost sales in 2012 and hit gross margin of 37 percent, that would lead to EPS of about $1.26. Shares are currently going for just over 15 times that number at today's range.
Wells has JCPenney at Underperform with a valuation range of $10 to $11. Its looking for Q1 loss of $1.06 per share.
JCPenney is indicated for a higher open Thursday.
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 $18.97 yesterday.
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