Part of the consternation surrounding the stock ahead of its release can be attributed to a bearish Barron's article over the weekend that suggested that shares could fall as much as 35% following its earnings results if there is a shortfall in its earnings growth expectations.
The article notes that the retailer's high level of debt makes it an unattractive takeover prospect while also noting that the sales bounce the company experienced in the first half of this year appears to be fading.
The company cited low September sales when it cut its third quarter same store sales forecast in October. Analysts are expecting the company to report a net loss of 81 cents per diluted share on revenue of $2.8 billion when it reports its financial results on Wednesday.
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 some concerns, 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 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 2.09 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- In its most recent trading session, JCP has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength 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.
- PENNEY (J C) CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PENNEY (J C) CO reported poor results of -$6.07 versus -$4.49 in the prior year. This year, the market expects an improvement in earnings (-$2.56 versus -$6.07).
- 36.01% is the gross profit margin for PENNEY (J C) CO which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -6.14% trails the industry average.
- You can view the full analysis from the report here: JCP Ratings Report