Market Overview

More Bad News for JC Penney

More Bad News for JC Penney

Pershing Square's Bill Ackman has not had a good run lately. Not only is he locked in a battle with fellow hedge fund giants over Herbalife (NYSE: HLF), he is also watching his 16.5 percent state in J.C. Penney (NYSE: JCP) take it on the chin.

Over the past five trading days, JCP is down more than 8 percent; over the past year, 45 percent. On Monday, Herbalife traded higher than on December 20 when Ackman announced his short position. It is every investor's nightmare: His short is acting bullish and his long is acting bearish.

Investors know what is going on with Herbalife, but how about J.C. Penney?

Over the weekend, The New York Post reported that same-store sales were down 30 percent during the holiday season.

Prior to that, on Friday when UBS analyst Michael Binetti downgraded JCP from “Neutral” to “Sell” and lowered his price target to $13 from $21.

The report said that CEO Ron Johnson's turnaround strategy will likely have to be significantly altered, thereby affecting EPS growth going forward.

Johnson's strategy rests on creating boutiques, or mini stores, within the larger J.C. Penney. However, as the company loses more cash, Binetti doubts that JCP will have the cash to roll out this concept in the timetable that it had set.

The note estimates that the company finished 2012 with $700 million in cash—down from $1.5 billion one year prior, according to The Wall Street Journal .

Binetti now expects JCP's same store sales to decline 28 percent — a downward revision to his earlier projection of minus 20 percent. Further, JCP has done an about-face on its discounting strategy. What was a cold shoulder to all discounting is now the company's main inventory reduction strategy.

A look at the JCP website reveals massive discounting on thousands of items. This may further affect cash flow according to the report.

JCP is widely covered by analysts but holds only 4 “Buy” or “Strong Buy” ratings with the majority of analysts placing a “Hold” rating on the stock. Technical analysts are no more bullish.

With JCP in a descending channel since July, its next chance for a technical breakout is the 50-DMA, currently about $1 or 5 percent away. A break out above the 50-DMA could flush out some of the 46 percent short interest causing a short squeeze.

Monday morning, Oppenheimer reiterated it's Outperform rating on JCP and said that the recent headwinds were a result of transitional stresses despite a disappointing holiday season.

The report did little to give a bounce to the stock Monday morning. JCP was down 5 percent but as of Monday afternoon, sellers had stepped in erasing all losses leaving the stock trading unchanged.

Posted-In: News Downgrades Hedge Funds Intraday Update Analyst Ratings Movers Trading Ideas General Best of Benzinga


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