What's Coming For JC Penney? - Kohl's (NYSE:KSS)

In a report published Monday, Sterne Agee analyst Charles Grom commented that it is "hard to get involved" in

J C Penney Company Inc

JCP

ahead of its earnings print given the company's approximate $8 per share intrinsic value. Grom noted that shares of J C Penney has traded in an "extraordinary" $6 to $11 range over a trailing 12 month period during which the company has seen a "mixed bag" of misses, beats, leadership changes and an accidental comp leak. Grom continued that heading in to J C Penney's first quarter report on Wednesday the main focus will surround margins and second quarter to date trends. Recent favorable weather trends could provide a short-term tailwind as May temperatures are 3.8 degrees higher year over year in key J C Penney markets, but the analyst cautioned investors on the company's ability to "comp the comp" over a multi-year period. Grom estimated the company will report an earnings per share loss of ($0.71) per share on revenue of $2.8717 billion. This compares to the

Estimize earnings per share consensus estimate (based on 21 estimates) loss of ($0.73) per share on revenue of $2.884 billion. The Wall Street Consensus estimate is calling for an earnings per share of ($0.79) on revenue of $2.874 billion. Grom also estimated the company will report a first quarter same-store sales of 4.0 percent (reflecting the company's April 8-K disclosure) and a 300 basis point year over year gross profit margin expansion due to more profitable clearance sales and higher private label penetration. Finally, Grom argued that J C Penney's first quarter will "likely" fall within the management's full year comp view of 3.0 percent to 5.0 percent. However, the company will face a difficult 6.0 percent second quarter 2014 comparison. Bottom line, there is no clear indication J C Penney's turnaround is sustainable and he prefers an investment in Buy-rated Kohl's Corporation KSS for investors looking for "turnaround" exposure in the retail space. Shares of J C Penney remain Neutral rated with an unchanged $8.50 price target.

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