Buckingham: JC Penney Still Worth $8/Share

In a report published Wednesday, Buckingham Research Group analyst David Glick maintained a Neutral rating on shares of J C Penney Company Inc JCP with an unchanged $8 price target following the company's first quarter comp sales guidance of 3.5 percent to 4.5 percent. According to Glick, the company's guidance is better than the 2.1 percent he expected and is also higher than the 3.2 percent the Street estimated. "We believe JCP is benefiting from a resurgent middle-income consumer tailwind driven by lower gas prices, improving employment and higher wages," Glick wrote. "Based on the better than anticipated guidance for first quarter and what we believe could be an accelerating comp in the back half as J.C. Penney's investor day initiatives kick in, we believe fiscal 2015's three to five percent comp guidance is very achievable." Glick said he expects gross margins to continue improving toward the company's stated goal of 36.5 percent. In fact, the company can exceed its goal so long as productivity and traffic improves and inventories are managed well. However, despite the unexpected same-store sales growth, Glick noted that JC Penney shares are trading at a "rich" valuation and owning shares are only compelling at levels below $8 per share. The reason for the bearish tone includes an uncertain pace and slope of recovery with difficult compares in the second and fourth quarter of 2015. Bottom line, the analyst is expecting continued share price volatility driven by consumer spending uncertainty, which could at times be exacerbated by the company's "highly leveraged" balance sheet.