Maxim Remains Bearish on Sell-Rated JCPenney (JCP) into Q3 Results

Maxim Group maintains a Sell rating and $4 price target on JCPenney (NYSE: JCP) heading into the discount retailer's Q3 report, which is expected out on November 12th, after markets close.

Analysts at the firm are looking for Q3 loss of $0.87 per share, versus consensus loss expectations of $0.79 per share. JCPenney reported a loss of $1.85 per share in the same period last year.

Maxim said, We believe that the recent increases in J. C. Penney share price to over $11.00 was in response to business improving but that there was little basis for the valuation at this price. Our $4 price target is represents a 4.6X EV/EBITDA multiple on our 2017 EBITDA estimate of $847.1 million. Our 2017 EBITDA estimate assumes a 1.6% compound annual comp rate, a return to 37.6% gross margins and flat SG&A dollars until 2017. The 4.6x EV/EBITDA multiple is in line with other department store multiples on that year's estimates.

The company guided to $2.1 billion of liquidity at year end. Investors will be watching the results closely for any change in this estimate, particularly on the downside. Our year end liquidity estimate is for $2.2 billion. Our year end cash balance estimate is $1.7 billion, compared with $1.5 billion at year end 2013. We estimate that working capital will create an inflow of $200 million this year. Finally, we anticipate $500 million of availability on the revolving credit agreement. Our liquidity estimate for the end of Q3 is $1.5 billion and note that the company may borrow on the revolver to build holiday inventory.

For an analyst ratings summary and ratings history on J. C. Penney click here. For more ratings news on J. C. Penney click here.

J. C. Penney closed at $7.22 yesterday.

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