J.P. Morgan Reiterates Neutral Rating on J.C. Penney Company Ahead of 2Q EPS Report

In a report published Monday, J.P. Morgan analyst Matthew R. Boss reiterated a Neutral rating on J.C. Penney Company JCP. In the report, J.P. Morgan noted, “Heading into JCP's 2Q EPS Tuesday (8/20), we hosted a Bull/Bear lunch (25+ clients on 8/16) to discuss key themes and the current setup into the print. Importantly, sentiment on the stock has reached rock bottom (lowest since covering the name, in our view) with investors feeling the "dynamics have changed" with a liquidity raise by year-end ($1B+) a near-certainty ($1.2B cash burn in 2Q alone) and Pershing's position (4-5 days of volume) now an overhang. Key topics of discussion included liquidity (raise by YE consensus), sales-to-GPM LT algorithm (return to '11 sales/sq. ft & GPM deemed unlikely), and valuation (equity value $0 using basket of distressed retailers on EV/sales). The bar for 2Q appears to be negative HSD-LDD SSS (JPM -6.8%) and GPM down 200-400bps (JPM: -680bps) with areas of focus into 2Q: (1) balance sheet details (WC/Capex) and potential financing (equity raise vs. convert), (2) gross margin degradation and LT structural impediments, and (3) 3Q-to-date SSS trends (2H consensus is 3Q +LSD SSS w/ 4Q +HSD).” J.C. Penney Company closed on Friday at $13.40.