NEW YORK (TheStreet) -- Shares of J.C. Penney Co., Inc. (JCP - Get Report) are currently down -3.08% to $8.81.
While saying it was sitting on the sidelines for now, Sterne Agee said it was remaining "neutral" on the retailer and that it didn't have a price target.
However, as the firm is "concerned structurally on Penney's position in the retail food chain, we see a scenario where the stock could rally in the near term."
Their views were in Barron's "Hot Research" feature.
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"We see signs that traffic is improving for Penney, which, in the near term, should help boost sentiment on shares, particularly if we hear positive commentary about April-May trends.
"Still, as cash continues to flow out of the coffers, investors should continue to scrutinize the turnaround, and keep in mind that, save another capital infusion, sales trends need to accelerate quickly to avoid low liquidity levels by third-quarter 2015," the firm said.
TheStreet Ratings team rates PENNEY (J C) CO as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate PENNEY (J C) CO (JCP) a SELL. This is driven by a few notable weaknesses, 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 generally high debt management risk, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Currently the debt-to-equity ratio of 1.81 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, JCP has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity 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.
- Net operating cash flow has decreased to $383.00 million or 40.62% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- JCP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 51.45%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The gross profit margin for PENNEY (J C) CO is currently lower than what is desirable, coming in at 28.40%. Regardless of JCP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.92% trails the industry average.
- You can view the full analysis from the report here: JCP Ratings Report