Could J.C. Penney shares sink to $1?
Analysts give the stock the dreaded 'underperform' rating, call it 'dead money' and twist the knife further with a $1 price target.
What makes for a really bad day at J.C. Penney's (JCP) corporate headquarters?
When your stock is reiterated a "underperform" and a $1 price target is placed on it. There are certainly a significant amount of people who advise never to listen to an analyst, but judging by Monday’s performance, the $1 price target was enough to send investors running and shorts feeling a lot better about their bet.
The stock fell nearly 8 percent Monday afternoon to $6.47 -- 85 percent lower than its high of $42.68 in February of 2012 and down 67 percent year-to-date. It doesn’t take a research report to judge Wall St. sentiment in this case, but a $1 price target is shocking.
Why the downgrade? Analysts at Imperial Capital give this explanation: “We are maintaining our Underperform rating on the shares, but we are lowering our one-year price target to $1 from $5. Our new $1 price target is based on the notional 'option' value of the shares, given our increasing concerns the company may engage in a financial restructuring in 2014."
While that sounds ominous, the report isn’t quite as bad as it sounds. The basis of the report is that the company may have the ability to stage a turnaround but investor sentiment, not helped by the media, continues to push the stock lower.
"Over time, we anticipate traffic and sales to recover, but the improvement in financial performance in F4Q13 may not be sufficient to instill confidence for equity investors and vendors."
It goes on to note that short interest in J.C. Penney was 26 percent as of Aug. 23 (as of Sept. 30, it was 38.6 percent.) High short interest might cause a large-scale short squeeze if unexpected good news surprises investors or a high-profile, deep-pocked investors announces a long position. In April, a regulatory filing revealed that George Soros’ Soros Fund Management amassed a 7.9 percent stake in the company sending the stock soaring 11 percent the next day.
But in the end, the report doesn’t see a lot of hope for the stock. "We fundamentally believe the stock is overvalued and likely dead money over the next couple of years," the analysts added.
Disclosure: At the time of this writing, Tim Parker had no position in the companies mentioned.
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wow - but then again...you turn your back on the good regular people who shopped at your stores, try to go high end and chase the crazy 'youthful markets', and get rid of your oh-so-popular-sales-discount-pricing policies.... and now you are a future 'study' for business schools to discuss what went wrong.
too bad too - a great name in the anals of retail that may not make it much longer.
They reaped what they have sown!
I have always shopped at JCP and still do. I don't find their clothing of poor quality, their store clerks rude, their prices too high, or any of the negative comments I see on the posts here.
I still think they are one of the best clothing stores around and as long as they are in business, I will shop there.
This was a doomed company waiting to fail.
I could buy an item at Dillard's for a little more money and have a much better "Quality" product or wait for a sale and buy the same product for the same price I'd pay had I bought it at Penney's.
Is Penney's the next Woolworths , I don't think so. I say watch and buy..
Ford stock bottomed at about $2.78 now look it's somewhere around $17.00 - $18.00
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