Could JC Penney be on the verge of a turnaround? It has seen no shortage of bad news in the years since the financial crisis — including a weak 2013 holiday season, a boot from the S&P 500 and a below-$10 stock price that was once closer to $80 a share — but according to Citi analyst Oliver Chen, brighter days are on their way. Chen upgraded the beleaguered retailer’s rating from neutral to a buy Tuesday morning, sending JC Penney stock surging 7.5% in pre-market activity.
In upgrading JC Penney from a neutral to a buy, Citi raised the retailer’s price target up from $8.42 to $11, a level the stock hasn’t seen since September 2013. “We’re upgrading JCP to buy based on our conviction that JCP can continue to deliver positive comp store sales in-line with fiscal 2014 guidance,” Chen writes in the report. “We believe this can happen as JCP fixes home, focuses on restocking basics & private branded product, and edits out inappropriate merchandise.”
That guidance, provided in the company’s fourth quarter earnings results released last month, included a full-year comparable store sales increase in the mid single digits, a “significantly” improved gross margin and liquidity in excess of $2 billion at year-end. Focusing just on 2014′s first fiscal quarter, JC Penney said in February that it expects a first quarter comparable store sales increase between 3% and 5% with depreciation and amortization totaling $155 million.
Chen acknowledged that JC Penney still has a long way to go — and indeed, the company reported a $1.4 billion net loss for full-year 2013 — but added that he and his team “like the risk/reward given our conviction that just making basic changes will support guidance for growth in 2014.”
SOURCE: Maggie McGrath