NEW YORK (TheStreet) -- Struggling retailer J.C. Penney (JCP) - Get J. C. Penney Company, Inc. Report has amended and extended its poison pill in an effort to discourage potential buyers from taking hold of the company at will.
On Tuesday, the company announced its board had approved an extension to the expiration date of its existing shareholder rights plan to Jan. 26, 2017. The plan was initially set to expire as of August this year.
Board members also voted to lower the beneficial ownership threshold to 4.9% from 10%, making it more difficult for parties interested in a hostile takeover to get a foothold in the business.
"If any person or group acquires 4.9% or more of the outstanding shares of common stock of the company without the approval of the Board of Directors, there would be a triggering event causing significant dilution in the ownership interest of such person or group," the company explained in a statement.
The move also helps protect the company's net operating loss carryforwards (NOLs), which can be used to offset future taxable income and reduce federal income tax liability. The company currently has more than $2 billion in NOLs. If an "ownership change" occurred under the Internal Revenue Code, the company's ability to use its NOLs would be significantly hampered.
TheStreet Ratings team rates PENNEY (J C) CO as a Sell with a ratings score of D. The team has this to say about their 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 2.12 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 0.36, 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 29.47%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -17.59% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$737.00 million or 1502.17% 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 35.4% in earnings (-$6.08 versus -$4.49).
- You can view the full analysis from the report here: JCP Ratings Report