Goldman Sachs caused mass panicked selling in JCP when they entered a sell rating with a 12 month price target of $5.50. The price has not been that low since February.
This tells me that Goldman Sachs does not believe that there has been a significant reduction in risk, improvement in cash flow, or change in the overall direction of the business. Lets compare the financial results for FYTD '14 and '15.
|FYTD '14||FYTD '15|
|Net Income||$-1,423 Million||$-712 Million|
|Adjusted EBITDA||$-688 Million||$-20 Million|
I do not care what anyone says that is a massive turnaround in 1 year. To say that the CEO has not earned a higher valuation is absurd.
Yes, There is still risk involved but given the Q3 results, I think you can reduce the risk adjustment for liquidity concerns. In a soft quarter the company still managed to produce $25 Million in Adjusted EBITDA. The adjusted EBITDA for the year is only negative by $20 million and should easily be positive for the year with the consensus Q4 earnings of $0.07.
I understand that Q3 was week for revenue growth but -.5% was still a decent number considering Macy's (NYSE:M) had revenue that contracted 1.3% in the same quarter. The soft quarter was felt through many companies not just JCP.
While this is happening and the stock is selling around $6.65 the company still has $2,430 Million in equity on 304.8 million shares or a book value of $7.97 per share. To buy the company right now at $6.65 represents nearly a 20% increase in your assets.
I think JCP investors need to take the weekend and think about the valuation of the company before they come out selling on Monday.
Disclosure: The author is long JCP.