NEW YORK (TheStreet) -- J.C. Penney (JCP) shares are up 1.7% to $7.37 on Tuesday following a note from analysts at Sterne Agee that praised the company's cutbacks but warned against a bullish outlook for the fourth quarter financial period.
Analysts at the firm are impressed with the company's improved sales trends and noted the company's 10.4% drop in inventory as a positive sign.
However, analysts at the firm are also being cautious about the company's prospects this quarter and reiterated their "neutral" rating on the stock.
"While the J.C. Penney ship has been stabilized, the pace of comp recovery in recent quarters has been substantially below what we would have expected 12-18 months ago. Taking this into consideration, along with today's ultra-competitive retail landscape, we don't buy into the company's expectations for comp recovery (MSD = '15-'17) or LT EBITDA target of $1.2B," said the firm.
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 several 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 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 2.23 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- JCP has underperformed the S&P 500 Index, declining 18.11% from its price level of one year ago. 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.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 8.9%. Since the same quarter one year prior, revenues slightly dropped by 0.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- 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 (-$2.60 versus -$6.07).
- You can view the full analysis from the report here: JCP Ratings Report