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J.C. Penney Dropped from S&P 500 Rises on Bond Upgrade

NEW YORK (TheStreet) - J.C. Penney (JCP - Get Report) was jumping Monday despite the struggling department store chain being told that Standard & Poor's plant to remove the stock from its benchmark 500 Index later this week.

The bump in the shares -- 3.5% higher to $9.18 by mid-day -- came as Imperial Capital raised its ratings on J.C. Penney's short-term bonds (those maturing between 2015 and 2018) to "hold" from "sell." Imperial analysts were encouraged by what it refers to as better-than-expected third-quarter earnings and cash burn, and stronger financial market conditions, "which should dispel any plans to engineer a financial restructuring in 2014," according to a Barron's article citing the research note.

Last week J.C. Penney reported third-quarter adjusted loss of $457 million, or $1.81 a share.

While net sales still fell in the quarter, the company played up that comp sales were improving. It also repaid $200 million of its revolving credit facility during the quarter.

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JCP Chart

JCP data by YCharts

Imperial maintains a "buy" rating on J.C. Penney's bonds maturing between 2020 and 2097. The company rates J.C. Penney shares at "underperform,' but did raise its price target on the shares to $5 from $1 "as risk of financial restructuring is lessened, in our view," the note says according to Barron's. Imperial did not respond to TheStreet's request for the research note.

The stock has been volatile this year as the Plano, Texas-based retailer attempts a massive turnaround amid a weak consumer environment and plenty of in-store and online competition. Shares are down 55% this year.

"Capitalizing on the strength of the recent surge in JCP shares and the equity markets, JCP could seek to raise additional equity on the heels of the holiday season, which should drive prices on the longer-dated bonds into the 80s, providing potential equity-type returns north of 20%, in our view," Barron's cited the note as saying.

Standard and Poor's announced late Friday that the struggling department store chain would be dropped from the S&P 500.

J.C. Penney will be removed from the S&P 500 after the close of trading on Friday, Nov. 29 and replaced by Ingersoll-Rand's (IR) spin off Allegion. Friday's trading will be shortened due to the Thanksgiving holiday. The markets are open until 1 p.m. EST on Nov. 29.

J. C. Penney's market capitalization is roughly $2 billion, according to Yahoo! Finance. It is now more representative of the mid-cap market, Standard and Poor's said.

The company will replace Aeropostale (ARO) in the S&P MidCap 400. Aeropostale will replace Corinthian Colleges (COCO) in the S&P SmallCap 600.

J.C. Penney declined to comment regarding the S&P 500 removal on Monday.

Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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