Why J.C. Penney (JCP) Stock Is Down Today

NEW YORK (TheStreet) -- J.C. Penney (JCP) was falling 3.2% to $9.42 Monday after detailing its new credit facility.

In a regulatory filing with the SECthe retailer said its subsidiary J.C. Penney Corp. Inc. entered into a commitment letter with several banks for a $2.35 billion senior secured asset-based revolving credit and term loan facility.

The new credit facility replaces an existing $1.85 billion credit agreement, giving the retailer $500 million more in borrowing capacity. The company will use the proceeds from the new credit facility to repay or refinance part of the existing credit line, pay expenses and fees connected to the new credit facility, and for general corporate purposes.

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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 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 generally high debt management risk, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 2.03 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. 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 33.06%. 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, JCP's net profit margin of -12.56% significantly underperformed when compared to the industry average.
  • 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 55.88%, 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 change in net income from the same quarter one year ago has significantly exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income has decreased by 1.1% when compared to the same quarter one year ago, dropping from -$348.00 million to -$352.00 million.
  • You can view the full analysis from the report here: JCP Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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