Gilford Analyst: JC Penney 'Stabilized,' Calls Q1 & FY15 Outlooks 'Encouraging'

J C Penney Company Inc's JCP shares were down more than 6 percent on Monday, after the company reported disappointing fourth quarter earnings last Thursday. Despite the fall, Gilford Securities analyst Bernard Sosnick said the "business has stabilized and outlook has brightened." He reiterated a Buy rating.

In a report published Monday, Gilford explained its reasons for supporting JC Penney. Besides a stabilized business, the firm sees strong results for the first quarter and the full 2015, possibly providing the basis for raising EPS expectations for 2015-2017.

Although the fourth quarter was not all that Gilford had anticipated, the performance was still quite solid. "A 4.4% same-store sales gain for 4Q/14 and an operating profit offered encouragement. Interest expense, a restructuring charge and an income tax charge (versus a big credit) pushed the bottom line into the red."

"After four years of losses the situation is still tenuous," the analysts said. However, they are "inclined to be positive because JCP may achieve its three-year plan, which management says was conservative and intended to be beaten."

"Management claims the number of active customers has rebounded to the pre-debacle level. But customers are not spending as much as much at Penney as they did before. If the active customer assertion is valid, then prospects ought to be favorable for Penney, because its stores look good, the merchandise content is back to where management wants it to be, inventories are fresh and well controlled, markdowns have diminished and sales at full price have increased."

Moreover, the firm highlights that 2015 got off to a good start, with sales in February above the plan, even in spite of the bad weather. Given the timely arrival of better weather, the firm anticipates same-store sales growth of 4-5 percent, "driven by sales of spring apparel and improved sales of home goods. A robust improvement in the gross margin is expected." They now estimate the first quarter loss will be cut to $0.78 per share from $1.15.