JC Penney's Pre-Announcement Disappoints As Margins Stay Under Pressure

Analysts at Susquehanna Group are no longer bullish on
J C Penney Company IncJCP
after the department store
disappointed investors in an update last week. The firm's Bill Dreher downgraded
JC Penney's stock
rating from Positive to Neutral with a price target slashed from $6.50 to $3.00.

JC Penney's third-quarter update and full-year fiscal 2017 outlook made it clear that the company continues to face gross margin pressures and various initiatives to boost sales are taking longer than expected, the analyst wrote in the downgrade note. As such, the company will continue to be in a position where its free cash flow will be allocated to pay down its debt load.

Following the disappointing announcement, JC Penney's stock was trading at a 10.4x multiple based on the analyst's revised fiscal 2018 earnings per share of 30 cents (versus a prior estimate of 54 cents). this still marks a premium versus the overall department store group at 10x excluding JC Penney so shares are no longer attractive to buy. In fact, the analyst no longer holds a constructive rating within the entire department store sector.

The best investment opportunity available within the
retail space
continues to be
Wal-Mart Stores IncWMT
, Dreher wrote (see his track record . The company continues to see "remarkably strong" momentum as the leading omnichannel retailer.

At time of publication, shares of JC Penney were down 10.1 percent at $2.81.

Related Links:
The Concerning Mixed Message JC Penney Is Sending To Consumers Resulted In A Downgrade
8 Stocks To Follow On JC Penney's Concerning Outlook
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Posted In: Bill DreherDepartment Storeretailretail earningsretailersSusquehanna GroupAnalyst ColorEarningsNewsGuidanceDowngradesPrice TargetAnalyst RatingsMovers