Piper Analysts Hit The Road With JC Penney Execs: Reiterate Stock As Top Pick

Piper Jaffray’s Neely J.N. Tamminga reiterated an Overweight rating on J C Penney Company Inc JCP, with a price target of $20.

Following a tour with CFO Ed Record and IT Trent Kruse, Tamminga named the stock Piper Jaffray’s Top Pick for 2016.

Initiatives For Growth

Tamminga mentioned that the company had undertaken several initiatives that were aimed at driving an increase in traffic, sales and profitability, such as lowering SG&A expenses om 2016.

“Following better-than-expected SG&A expenses in FQ4, management expects SG&A dollars to decline in 2016 driven by fewer ad dollars and store process improvements,” according to the Piper Jaffray report.

The company also projected capital expenditure of $375 million for 2016, “aimed at digital, additional Sephora roll outs and center core remodels,” while appliances were being piloted across 22 stores.

“We note this is a step up from $300M in 2015, yet likely remains below JCP's potential capex range of $400M-$450M longer-term,” the analyst pointed out.

$1.2Bn+ EBITDA Target

Tamminga stated that these initiatives “give us further confidence in the company's ability to recapture at least $2B of the $6B in lost revenues while climbing on the path back up to at least $1.2B+ in EBITDA.”

JC Penney intends to implement a plan that focuses on driving profitability in 2016, along with $1 billion in adjusted EBITDA, supported by comp store sales gains of 3-4 percent and a series of omnichannel, revenue per customer and private brand strategies.