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Summary

  • JCP has been a battleground between the bulls and the bears.
  • The debt markets are telling you that the Company's liquidity is adequate.
  • Moderate comp store sales, combined with improving gross margins should send the shares higher.

It is hard to say what is actually priced in J.C. Penney (NYSE:JCP) stock at the current moment. As of this moment, the stock is down about 10% on the year, after getting crushed last year on the Ackman/Ron Johnson debacle and the ill-fated offering. By contrast, Macy's (NYSE:M) is up 6% year-to-date after a multi-year run. The retail holder's index is down about 5% on the year. So once again, JCP is underperforming its peers, even though its operating performance has stabilized and appears to be improving. The debt markets are no longer concerned about the company's liquidity, as the bonds are on their highs and the CDS is on the lows.

Tonight, the company is going to report Q1 results. This is normally a quarter that should not matter. BUT for JCP, the company needs to show continued operating improvement, and is lapping easy comparisons. From my standpoint, the company needs to meet consensus numbers to support the current stock price, and any meaningful improvement, or god forbid, a big beat, should send the stock to the double digits. The company has its home store open (closed this time last year), and that alone should drive some amount of positive revenue growth, offset by store closures. The real key will be the gross margin percentage. The Bloomberg consensus is at 33%, which would be a nice pickup from the 29.5% that it did last year. Stable sales with a meaningful beat on the margin line should spook the shorts, as there is massive operating leverage from each 100 basis point improvement in gross margins on $12 billion in sales. If it meets or beats these numbers, the stock should move above the $9.65 offering price and finally go to the $10-12 range - where it should be, based on improved results and an end to the endless bankruptcy speculation that has held back the stock. For a more detailed look at where the stock should go in the longer term, see my past articles that discuss longer-term valuation ranges.

Source: J.C. Penney: What To Expect From The Quarter

Additional disclosure: Positions can and do change at any time without warning or notice.