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J. C. Penney (JCP) Seen Generating Postive Comp Sales Amid Comback, Citi Upgrades to Buy

March 11, 2014 6:40 AM EDT
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Price: $0.18 --0%

Rating Summary:
    1 Buy, 21 Hold, 11 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 12 | Down: 9 | New: 10
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(Updated - March 11, 2014 8:39 AM EDT)

Citi upgraded J. C. Penney (NYSE: JCP) from Neutral to Buy with a price target of $11 (from $7.50). Analyst Oliver Chen thinks J. C. Penney will continue to generate positive comp sales. He also views liquidity concerns as "overdone."

"We're upgrading JCP to Buy based on our conviction that JCP can continue to deliver positive comp store sales in-line with FY14 guidance (+MSD)," said Chen. "We believe this can happen as JCP fixes home, focuses on restocking basics & private branded product, and edits out inappropriate merchandise. Achieving 1Q & FY guidance will mitigate investor fear on liquidity concerns and drive profitability and the stock higher. We acknowledge that JCP is early in this go-forward phase but we like the risk/reward given our conviction that just making basic changes will support guidance for growth in 2014. We believe 4Q’s +2% comps on better conversion, transaction size, & units w/ high levels of customer service bodes well for con't momentum and share gains."

"In our view, JCP is not taking substantial fashion risk but just going back to what worked before & marketing to drive prudent traffic. What’s going to drive comp & healthier margins: (1) home department which is ~12% of mix and had severe space/product disruptions in 1H13; a revamped Home Collections at JCP has better price/value, renewed focus on bedding/bath/small electrics & decorative accessories; (2) fixing kids (~12% of mix), which was disrupted in 2H13 given space allocation to ideas which did not resonate; (3) fixing the mix of private, exclusive, & national brand merchandise that better resonates with the JCP customer (private brands ~30% under Johnson vs. ~50% historically, & have 400-500bps benefit vs. national brands). If 20% of JCP's business mix (home and kids ~20-25% of total) can comp +20% this yields a 5% benefit," he added.

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 $8.42 yesterday.


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