Imperial Capital Analyst Warns JC Penney May Issue Added Equity Or Restructure

In a note released Monday, Imperial Capital voiced concerns that

may need to “issue additional equity to pay down debt or eventually restructure.” Analyst Mary Ross-Gilbert maintains an Underperform rating and $2.50 price target on the shares, but also maintained a Buy rating on J.C. Penney bonds maturing 2020-2097. Ross-Gilbert recommends that investors “hedge a long [bond ] position by shorting the shares and/or the shorter-dated bonds.” Longer-dated bonds “create the company at 33% of revenues (43% excluding excess cash), which compares favorably to other major departments store retailers trading in the 43%-92% range,” says the analyst. The Imperial analyst believes “debt leverage would be nearly 10x, potentially requiring a restructuring unless JCP raises additional equity.” Ross-Gilbert views this as a possibility based on “anticipated positive operating momentum.” Shares of J.C. Penney were up 0.69 percent in premarket trading to $8.74. Shares are up 72 percent since February 4.