JC Penney Shares Jump Despite UBS Downgrade

UBS downgraded J C Penney Company Inc JCP on Monday from Neutral to Sell and lowered the price target from $10 to $5.

Analyst Michael Binetti commented that "JCP's target of $1.2B in EBITDA by 2017 (based on 3 straight years of +5.4 percent SSS growth & flat SG&A dollars) is overly optimistic given that we expect the department store industry to grow at a +2 percent CAGR over the next 3 years."

Binetti concluded that "JCP simply did not present enough merchandise newness at its analyst day for us to believe in a scenario with several years of share gains from strong competitors like Macy's/Kohl's."

Despite the downgrade, shares surged higher as the company announced "the appointment of Marvin Ellison, currently executive vice president of stores at Home Depot, as President and CEO-Designee, effective November 1, 2014."

The report noted that with "the potential EBITDA scenarios for JCP becoming clearer, we think it's time for valuation to normalize back to in line with (or at the low end of) the historical peer avg (5x-6x EBITDA). Even using JCP's 3-year targets (which we find too bullish), the 1-year forward stock value would be ~$7/share (5.5x, mid-pt of 5-6x historical range, 10 percent discount rate)—near today's price."

J C Penney Company Inc recently traded at $7.27, up 2.1 percent.