Goldman Sachs Comment on J. C. Penney's JCP) Q1

Goldman Sachs maintained a Neutral rating on J. C. Penney (NYSE: JCP) and raised its price target to $6.00 (from $5.50). FY14/15/16 EBITDA estimates were raised to $191/$538/$736 million from $92/$470/$709 million.

Analyst Stephen Grambling thinks the retailers turnaround is on track but he said "valuation appears to embed return to peak."

"Traffic inflection – Comps improved sequentially each month with traffic inflecting positive in April. With ongoing tailwinds from home, marketing and re-merchandising, we now embed a higher comp trajectory," said Grambling.

"Gross margin still evolving – Clearance mix/margin weighed on 1Q but gross margin improved sequentially and clearance returned to historical levels by quarter end. With private label back near 50% and discontinued brands no longer a headwind, we assume the recovery continues."

"SG&A stabilizing – SG&A was -6.4% yoy in 1Q. We embed a more normal growth rate beginning in 2H14, in line with management’s expectations. While we were encouraged by 1Q results and our FY14 estimates imply an EBITDA inflection, the shares trade at 7X our upside scenario of $1.1bn in EBITDA in FY16, a premium to peers despite execution risk on the path to normalized fundamentals. Therefore, we remain Neutral on valuation," he said.

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 $8.37 yesterday.

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