J C Penny Analyst Roundup After Q3 Results

J C Penny Company Inc. JCP fell sharply Thursday after reporting mixed Q3 results and weak guidance.

The stock traded at $7.05 Thursday morning, down 9.21 percent.

Below are analysts comments on the company along with current ratings and price targets.

Credit Suisse - Underperform, $7 price target

“We think it will be challenging for the company to achieve its longer term revenue growth expectations. JCP will have to achieve revenue growth while holding on to its current gross margin rate; if it is unable to do both at the same time, it will be difficult to create a sustainable enterprise. Amid a challenging external environment, we believe a strategy embracing store/asset rationalization, expense reduction, and deleverage is a more realistic one for JCP while it continues to work on refining merchandising. We lower our FY14 estimates to -$2.20 from -$2.04, and our FY15 EPS estimate to -$1.67 from -$1.22.”

CRT Capital - Not Rated, no price target

“JCP’s release reflects the difficult operating environment that management highlighted at its 10/8/14 Analyst Day and other industry players have reported. It also reflects the normalization of clearance sales, which has a negative impact on same store sales (“SSS”) but a positive impact on gross margin. The Company’s 3Q14 non-clearance sales, which represented 85 percent of its sales, increased year-over-year by an encouraging 6 percent to 7 percent, whereas clearance sales, which represented the other 15 percent, decreased year-over-year by 30 percent. We expect the company’s clearance sales to normalize in the 2Q15. Management reiterated that it does not anticipate significant near-term store closures and/or cost saving initiatives, which means that the Company’s path back to cash flow break-even will be based almost entirely on revenue growth in a tough retail environment.”

Morgan Stanley - Underweight, $5.50 price target

“We had previously estimated 3/2/2 percent 2015/16/17 comps. Given JCP's results this quarter, these estimates appear increasingly aggressive, particularly with much harder comparisons to come. We are trimming our 2015/16/17 comp estimates to 2/1.5/1 percent. We continue to expect a recovery to a prior peak 38-39 percent GM (MSe 38.5 percent) in 2017, above management’s conservative 36.5 percent target. We believe strong inventory management and improved trends in private label merchandise can return GM to these levels. Given management’s diligent expense control YTD, we see opportunity for further cost cuts in the future. We now assume SG&A will decline ~$15M each year.”

Deutsche Bank - Hold, $8 price

“While weather presented a headwind and the cycling of material clearance events in Sept. last year is an understandable hurdle, we are very concerned with the SSS slowdown to flat in 3Q. Combined with SSS guidance of only 2-4 percent in 4Q and comments on the call that many of the initiatives will not kick in until 2H15, JCP is already well off track of its 3 year plan (outlined last month) to consistently drive MSD comps and attain $14.5B in sales. In fact, our updated 2017 model falls short of JCP’s revenue plan by $1.0B. Margins in 3Q were stronger than expected, but at current levels the clawback of market share will needed for further gains.”