JCPenney stock crashed 10% in late trading yesterday, and this morning Citi downgraded JCP shares to a “sell.” However, a rebuttal from the company this morning denying the inventory claims has JCP stock snapping back.
Of course, it’s still down about 25% year-to-date … so there’s room.
Granted, the New York Post isn’t known as a bastion of quality business journalism. And yes, shares are headed higher this morning as investors seem to think the panic was overdone.
But this alleged trouble with lenders is one more reason to sell JCP stock.
That’s because Wall Street clearly believed it yesterday — and with good reason. Frankly, many investors didn’t even question the news because they figure this kind of trouble is inevitable based on JCP stock history and the troubled balance sheet for this company.
Whether it’s trouble with CIT Group or some other credit issue, JCPenney clearly is not in good shape. JCPenney hasn’t posted a profit in seven quarters and isn’t forecast to get out of the red until Q4 2014, according to S&P analyst estimates — and that’s just quarterly; the company is expected to be well in the red for both full-year 2014 and 2015. Plus, JCPenney’s credit rating is an abysmal CCC+, deep in junk territory, according to S&P.
Same-store sales are mired in free fall. Management is a mess after former Apple (AAPL) retail exec Ron Johnson was summarily fired after about a year-and-a-half on the job, and Mike Ullman is back running the show after being the man who basically ran JCP into the ground.
Oh yeah, and there’s that whole e-commerce thing from Amazon.com (AMZN) and other merchants that are selling more on the web and ruining brick and mortar business models … just in case you haven’t heard about that trend.
Citi appears to see the writing on the wall, with analyst Deborah Weinswig writing, “We do not believe that JCP has made progress in stabilizing the business in 2Q13, and we see no evidence of a turnaround in the works.”
JCP stock isn’t going to zero anytime soon, of course. It should post earnings in August that show about $1.5 billion in cash on the books and thus far hasn’t had any trouble making payments. But Ullman has made no bones about mortgaging the company’s property and headquarters to raise ready cash, and that could indeed backfire eventually.
So while JCP isn’t necessarily in trouble with CIT, the sad reality is that its financial situation is miserable and investors wouldn’t be surprised to see a more reputable report appear in the Wall Street Journal sometime soon.
And that sentiment says everything about what Wall Street thinks about JCP stock right now.
Sure, sometimes embattled retailers restructure and survive. But look at the long-term trend at Sears Holdings (SHLD) and Best Buy (BBY), and you’ll see that outside of some short squeezes and volatility that briefly swings shares upward, the long-term trend is decidedly down for these brick-and-mortar icons that have their best days behind them.
- The original JCP-CIT allegations, based on a “source close to the situation.” (New York Post)
- The corporation’s response. (JCP investor relations)
- Why firing Ron Johnson wasn’t enough to fix JCP. (BusinessWeek)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.