Which will go bankrupt first: J.C. Penney or Sears?
Both are expected to bleed serious red ink all of this fiscal year and even across the next 2 fiscal years.
Sears is losing hundreds of millions of dollars each quarter, with SHLD down about 50% from 2010 highs even after the recent short squeeze that sent the stock soaring from $40 to $60 on the continued hopes of "unlocking value" in its real estate holdings.
As for JCPenney, the stock is down 70% from its 2012 high built on Ron Johnson optimism. The former Apple (AAPL) retail exec failed and has now become the former JCPenney exec, and shares continue to slump with his predecessor Mike Ullman back in the saddle despite his previous stint, when he basically ran JCP into the ground.
Which one is worse? Well, it's hard to say.
Both JCPenney and Sears are expected to bleed serious red ink all of this fiscal year and even across the next two fiscal years. Both have an abysmal CCC+ rating from S&P, deep in junk territory and described as "currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments." Not pleasant.
So how likely is bankruptcy? Well, let's look at each pick separately.
First, JCPenney. The retailer has $5.8 billion in total debt and total liabilities of $9.3 billion vs. a market cap just under $3 billion. Fortunately, however, total assets are $11.6 billion (presuming they were valued correctly at the end of last quarter) so the math shows that selling the company for parts tomorrow could pay all the outstanding bills. With almost 25% more in assets than obligations, there's plenty of wiggle room, too.
But talk of credit drying up (investorplace.com) for JCPenney in August is a real threat. Obviously, the financing games to keep the lights on and restructure the business only work so long as the banks are willing to play ball. JCPenney could be one bad headline away from a credit freeze and a bunch of bounced checks.
Sears is in a similar but slightly better position. Total debts are $3.7 billion and liabilities are $16.9 billion. With a market capitalization of about $6.3 billion, the retailer has less debt than its market value -- something JCPenney can't claim -- and liabilities that are less than 3x market cap vs. more than 3x for Penney.
The real difference, however, is in total assets that top $19.3 billion -- almost 14% above its outstanding obligations. That's a slimmer margin than JCP but still a favorable one.
So when it comes to the question of bankruptcy for Sears or JCPenney, which is driven almost wholly by lenders who think it's the only way to get paid, there is clearly no imminent threat. As long as JCP and SHLD are worth more than their obligations, they will continue to operate as usual.
But the important thing for investors to note is that with continued cash bleed at both companies, the weight of debt service thanks to a poor credit rating and the overall consumer trend that has resulted in slumping sales for these department stores ... well, the losses will keep mounting and we might not be far removed from liabilities overwhelming assets at SHLD or JCP.
Neither will be going bankrupt anytime soon, barring a turn of very bad luck in the short-term, but given the trend, it's likely that either or both could face serious solvency questions as early as next year.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.
More from InvestorPlace
Then one fall day the headhunter came in and took over the store. Inside of a week a lady that was never late, came in to work with a phone calls notice on her day offs when someone banged out (we lived under a mile away) and would go in at 2:00 am on Black Friday was thrown out the door for following the protocol of a 35 year employee who was the former store manager.
Over a dozen long term employees (some over 20 years at same store) were axed that week over assorted reasons and the younger, minimum wage employees who bang out sick, don't show up on time and hate their job, benefited. If JCP treats their employees like that then my guess is they are going to beat Sears to the grave. Not saying this out of bitterness, just my thought.
As long as both companies continue to fail on their main focus, taking care of the employees and customers; they'll both be gone soon. The problem is, all of these slick forecasters will say or do anything to build up their stock so they're stock prices will go up and for what??? To keep the CEOs making their money. It's amazing, I spent 19 years at Sears and I knew more than any of the CEOs who get overpaid millions of dollars in stocks, plus their bonuses that I never got. Greed for the better part of the word: NOT GOOD. Shame on the stockholders shame on those who work close to those CEOs who are just yes men/women to them.
Soon all we will have is WalMart, or should I just call it ChinaMart.
JCP was given the idea to become "America's store" throw out ALL the foreign make junk and stock U
S made products.....JCP did not listen....telling the customers JCP knows what you want to buy!!!! CHEAP JUNK.
Sears and Pennys carry "Martha Stewart" products which absolutely are nothing but junk. I do not buy her products.
I do not go to either store to purchase anything!!!!! Prices toooooo high, junk on the shelves. Credit card interest rate toooooo high.
I now will look for local stores and Mom & Pop stores to spend my money, but still buy US made products.
GOOD BYE SEARS AND JCP. you will not be missed!!!!
The treat of JCP Credit freezing up in August is a serious threat but neither company will be going bankrupt soon?
Seems to me if the credit freezes up for JCP they will be in Chapter 11 protection the very next day seeing how they dont have cash to operate the business for even 1 week.
I dont know how either has stayed in business as long as they have.
Look at the volume of people going in/out of the stores versus a Walmart.
Then factor in the high real estate they have in malls. [ever see a Walmart in a mall?}
Their business model has not adapted to the market changes and their position now is proof positive of this.
I hope MSN beats all of them to Bankruptcy!!!!!!!!!!!!!!!!!!!!!!
I seem to recall just reading an article about J C Penny having a tremendous increase in revenue? That doesn't seem to go along with MSN's wishes for all American companies to fail!
Neither Sears or JCP are now worthy of the support they enjoyed for so many years . Customer service quality , that was worth paying a little higher for , is now almost non-existant , although there are exceptions . You now can usually pay much less , for virtually the same item , at numerous discount stores . How else do you explain seeing few customers in either store ? And with the economy the way it is , every dollar saved matters for most families . I don't know which one will fall first , but unless they decide to be discount stores , they WILL fall . Sad for both .
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
These hot movers could rise by double digits in coming months.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.