Morgan Stanley: A Sears Bankruptcy Could Benefit JCPenney
As retailer Sears Holding Corp. (NASDAQ: SHLD) approaches bankruptcy, Morgan Stanley is considering the ramifications on competitors like J.C. Penney Co. Inc. (NYSE: JCP).
The Analyst
Morgan Stanley analyst Kimberly Greenberger maintained an Equal-weight rating on J.C. Penney with a $1.50 price target.
The Thesis
Sears’ announcements regarding the addition of a restructuring expert, a boutique advisory board and a roughly 80-percent probability of default, interest in J.C. Penney stock has increased, Greenberger said in a Thursday note. (See her track record here.)
J.C. Penney has the highest store overlap with Sears, based on radius research, the analyst said. The department store has manageable near-term debt, as it finished the second quarter with $182 million in cash. This funding appears sufficient for 2019 and 2020, she said.
“Near term, if SHLD decides to close additional stores and/or engage in liquidation sales, retailers operating in the corresponding trade areas could experience some short-term pressure. We note, however, that SHLD has been closing stores for years," Greenberger said.
Sears has shuttered 835 K-Mart locations and 335 Sears stores in the last five years, the analyst said.
Greenberger expects a potential benefit from further closures for retailers like J.C. Penney, as they could service the transitional shoppers.
Yet Sears may remain open through the holidays. The retailer is working out a deal with lenders to keep it afloat until at least Christmas, but the company must close some stores immediately in return, according to a CNBC report.
The retailer's fate appears inevitable, despite the upcoming holiday season, as the company lost $508 million in Q2. Sears is also responsible for a $134-million debt payment due next week that may not be covered, CNBC said.
Price Action
J.C. Penney shares were trading down 4.7 percent at $1.72 at the time of publication Friday.
Related Links:
Sears Could Be One Step Closer To Bankruptcy
Goldman Sachs Picks 3 Buys, 1 Sell In Retail: 'We Expect The Better Growth Outlook To Persist'
Photo via Wikimedia.
Latest Ratings for SHLD
Date | Firm | Action | From | To |
---|---|---|---|---|
Jun 2018 | Susquehanna | Terminates | Negative | Negative |
Dec 2017 | Moffett Nathanson | Initiates Coverage On | Sell | |
Feb 2017 | Susquehanna | Initiates Coverage On | Negative |
View More Analyst Ratings for SHLD
View the Latest Analyst Ratings
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