J.C. Penney: Will The Stock Follow The Debt?

Jul.22.14 | About: J.C. Penney (JCP)

Summary

J.C. Penney bonds, CDS and bank debt are all trading on their recent highs after a massive rally.

JCP stock appears stuck in a holding pattern.

JCP the Company appears on track on an operating basis.

This article will serve as a quick update on J.C. Penney (NYSE:JCP). When I first started writing about it after the massive offering, the Company's securities were in absolute free fall. The stock traded down to the mid singles digits and the bonds were trading as if a filing were immanent.

What is interesting is that the stock and bonds have staged a massive recovery. The 5-year CDS has dropped from the mid 30s to 10. The widely followed 2020 bonds have gone from the mid 60s to the high 80s. The Company has printed two solid quarters and guided to free cash flow neutrality which was seen as impossible when I started writing about the Company in the fall.

In my experience, it is highly unusual for a Company to have this kind of rally in its debt and not see a corresponding move in the common IF and this is the big IF, the Company keeps on executing.

JCP bonds and the CDS are telling you that creditors no longer fear a filing, while the stock is still materially below its offering price. The next few quarters will be telling, but the business appears on track and the bank debt holders often have better access to Company data.

There is not much new to cover that hasn't been written about, but the massive upward move in the debt is worth noting as it was certainly used against the Company on the way down.

Disclosure: The author is long JCP. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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