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Does Goldman Sachs' Sell Rating On JC Penney Really Mean Sell?

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“Sell” is a word seldom heard on Wall Street. The reason being that investors are much more interested in how far a stock can go up, rather than how low it can fall. Therefore, analysts spend a majority of their time researching stocks that will rally as opposed to one's that may decline.

Two classic sayings illustrate this market dynamic:

  • An analyst is only as good as their last idea.
  • A stock can be bought many times, but sold only once.

In fact, until the financial crisis in 2008 and the corresponding scrutiny thrust on to investment banking world, “Sell” ratings were a rarity.

The Dreaded Sell Rating

So when a top investment bank slaps a Sell rating on an issue, it garners attention. That is what took place Wednesday as Goldman Sachs lowered its rating on J C Penney Company Inc (NYSE: JCP) from Neutral to Sell, with a price target of $5.50.

The beleaguered retailer is quite a distance from its all-time high of $87.18 reached February 2007, about a year ahead of market meltdown in 2008. In fact, it is within striking distance of its multi-year low made in February at $4.90.

Once the darling of the American mid-range department stores, which migrated from downtown areas to suburban shopping malls, J C Penney has been cannibalized by the emergence of other mid-range retailers such as Target Corporation and Kohl's Corporation.

Related Link: Bank Of America: Malls Underperforming

Off To A Strong Holiday Season

The timing of the downgrade is puzzling. From all indications, the company got off on the right foot for the upcoming holiday season.

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Retail analyst Brian Sozzi of Belus Capital declared J C Penney as one of his Black Thursday winners. Speaking with Benzinga, Sozzi noted a lot of strength in the home department this year.

That dose of good news sent the shares of J C Penney over the $8.00 level last week for the first time since it swooned from $9.45 to $8.19 after missing Wall Street Q3 estimates by $0.02 on lower revenues.

Decline Since Monday

However, it was weak this Monday, falling from $8.01 to $7.53 and shedding another $0.14 on Tuesday to close at $7.39. On the heels of the Goldman Sachs downgrade, it has struggled to maintain support at its November $6.92, which it crossed on Wednesday.

At time of publication, J C Penney was attempting to rebound and reclaim the psychologically important $7.00 level.

It should be noted, J C Penney was downgraded by other Wall Street firms to Sell in October. UBS, who downgraded the issue from Neutral to Sell on October 13 and reduced its price target from $10.00 to $5.00. Imperial Capital maintains the Street low price for J C Penney at $3.00.

Latest Ratings for JCP

DateFirmActionFromTo
Dec 2016Bank of AmericaUpgradesNeutralBuy
Sep 2016GuggenheimInitiates Coverage onNeutral
Aug 2016Morgan StanleyMaintainsUnderweight

View More Analyst Ratings for JCP
View the Latest Analyst Ratings

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