JC Penney Stock Is Now A Better Bet Than Its Competitors

Shares of J C Penney Company Inc JCP, Kohl's Corporation KSS and Dillard's, Inc. DDS have gained significantly over the last 5 trading days.

JC Penny

Deutsche Bank’s Paul Trussell maintained a Buy rating for J C Penney, saying that the company’s strong share gains, margin expansion and robust FCFs in 4Q made it the frontrunner among department store companies.

While the various department store companies were willing to take big markdowns and enter FY16 with clean inventory levels, most of them will require further clearance in 1Q, Trussell pointed out. He added, “CP was our only covered dept. store to post a (slightly) positive sales to inventory spread, and in turn achieved GPM expansion.”

JC Penney’s shares rallied on the 4Q beat and better-than-expected FY16 EBITDA guidance. “SSS, EBITDA, and FCF all stood out in attractive measures given the challenges that JCP had faced just two years ago and that its peers are currently dealing with,” Trussell noted.

The analyst expects the company’s top-line momentum and the strong comps in January to continue throughout the year.

Kohl’s

Trussell maintained a Hold rating on Kohl's, while reducing the price target from $47 to $44. He mentioned that while at first appearance Kohl’s guidance appeared to be more realistic than usual, it actually assumes an “unlikely hockey stick rebound in GPM driven by easier compares, improved inventory levels and a stronger private label offering.”

The EPS estimates for 1Q and FY16 have been reduced from $0.57 to $0.40 and from $4.07 to $3.98, respectively.

Dillard’s

Deutsche Bank downgraded the rating for Dillard's from Hold to Sell, with a price target of $70. Trussell noted that Dillard’s stock is up 29.8 percent year-to-date versus a 4.7 percent decline in the S&P500.

“We see a difficult road ahead with persistently weak comps and meaningful deleverage on fixed expenses given management’s limited levers left to pull,” the analyst stated.

Stalled revenue growth in the apparel and accessories segment, continued weakness on the Southern border and in energy producing regions and low sales in the rapidly growing ecommerce channel remain Dillard’s weak points. Trussell added, however, that the company continues to have a strong real estate portfolio that could be monetized.