Given the most recent report from Credit Suisse, the pressure on the stock isn't all that surprising. The analyst team is out with a slew of new ratings in the retail sector, giving a positive nod to many companies and outfits.
However, J.C. Penney wasn't one of them. They initiated the stock with an underperform rating and $2.50 price target. From Monday's closing price, the target implies 35% downside to the stock.
Here are several of their concerns:
"(1) Appliances (now in majority of chain, lapping 150 basis point+ comparable store sales lift in '17); (2) Beauty (Sephora in 75% of stores, Ulta (ULTA - Get Report) adding 100 stores/year, Macy's (M - Get Report) beauty revamp); and (3) Home (Amazon (AMZN - Get Report) /Costco (COST - Get Report) /off-price accelerating in category). Importantly, in addition to cash constraints to service debt (net debt=4.6x trailing-12-months EBITDA ex-gains), J.C. Penney will see almost no tax savings, leaving it disadvantaged as competitors such as Macy's/Kohl's (KSS - Get Report) reinvest in growth initiatives or lower prices."
Amazon is a holding in Jim Cramer's Action Alerts Plus.
"While high-gross margin categories could improve (women's apparel lapping mid-single digit percentage declines in '17), most growth will still be from low-gross margin categories (appliances, eCommerce). Importantly, we're particularly concerned that competitors will reinvest tax savings in lower prices. J.C. Penney's ~2% EBIT profit margin ex-gains in '17 leaves little room to lower margins to compete. In '18, we assume comparable store sales up 1.1%, gross margin up 40 basis points, and operating expenses down 2.7% year over year (which may be aggressive as industry credit income slows), resulting in $920 million in EBITDA (Street: $919 million). However, we think any investment in price by competitors could create incremental downside EBITDA risk for J.C. Penney."