NEW YORK (TheStreet) -- Battered retailer J.C. Penney (JCP - Get Report) has gained 3.2% to $8.40 on Monday after support from investment firm Avenue Capital over the weekend. The gains add to a share rally on Friday when the company surged 8.5% to $8.14.
At the Investment For Kids Investment Conference in Chicago Saturday, Avenue Capital's Marc Lasry picked J.C. Penney as a favorite to buy on the belief the retailer would recover and turn a profit, offering unsecured bondholders 25% annual returns within two years.
Lasry said the Texas-based company has shored up its prospects after September's $800 million equity offering which should give it sufficient funds to weather 2015 and return to profitability. New management's refocus on retail basics such as coupons and promotions will have a positive impact, he said.
TheStreet Ratings team rates J.C. Penney as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about its recommendation:
"We rate PENNEY (J C) CO (JCP) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, disappointing return on equity and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is very high at 2.51 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.44, which clearly demonstrates the inability to cover short-term cash needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Multiline Retail industry and the overall market, PENNEY (J C) CO's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for PENNEY (J C) CO is currently lower than what is desirable, coming in at 29.55%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -22.00% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$708.00 million or 2112.50% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- PENNEY (J C) CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, PENNEY (J C) CO reported poor results of -$4.49 versus -$0.73 in the prior year. For the next year, the market is expecting a contraction of 39.2% in earnings (-$6.25 versus -$4.49).
- You can view the full analysis from the report here: JCP Ratings Report