Skip to content

Analysis on JC Penny (Ticker: JCP)

July 21, 2013

By Gulshan Malhotra (AnalysisTime.com)

Overview

J.C.Penny Company Inc. (hereafter “JC Penny”) is a retailer and operating 1,102 department stores in 49 states of USA and Puerto Rico as of January 28, 2012. Its business consists of selling goods and services to consumers through its department stores and by its website at http://www.jcp.com. It sells family cloths, footwear, accessories, fine and fashion jewelry, beauty products through Sephora inside jcpenney and home furnishings. As of January 28, 2012, its network operated 27 facilities at 18 locations, of which nine were owned, with multiple types of distribution activities housed in certain owned locations. In 2011, it acquired the worldwide rights for the Liz Claiborne as well as the United States and Puerto Rico rights for the Monet.

The closing price for the stock of JCP as on Jul 19, 2013 is $16.35. In this analysis, we are not considering just 52 Weeks’s history, but 5 year’s history as well. The purpose to consider 5 year’s history is to accommodate the lows and highs of the business cycle.

Stock Exchange Info

JCP is listed on Dow Jones with ticker “JCP”. It falls under sector Consumer Services and industry Department Stores.

Historical Analysis

Chart 1 : 5 Years Analysis

Chart 2 : 52 Weeks Analysis

If we look at the 52 week’s pricing trend, low is $13.55 and high is $32.55.The current price is towards the lower side based on 52 week’s price range. If we look at the 5 years pricing trend, the low is $13.55 and the high is $44.20, the current price is again towards the lower side based on 5 years price trend. This indicates that it is a good entry point. (See chart 1 and 2)

Table 1: High / Low Prices

Reason for fall / spike in the price of stock

JCPenny newly CEO, in 2012, change the advertisement policy from local newpaper to magazine and television which was unfavourable for the company and put the company into losses. Begining 2013, JC Penny reinstate the old management by laidoff the CEO and staff and also reinstate the old advertisement policy. Company is doing all its effort to make business profitable. In my opinion this volatality is bring an opportunity for investors. In summary, the main reason for the loss is drop in sale.

Volume analysis

Average daily volume is 5.3M shares, which is equivalent to $86.7M based on the current price. This means that the deals that are equivalent to average $86.7M, complete in one day. The maximum level of $900k is suggested for the investment to keep the liquidity high.

Options Price Analysis

N/A

Valuation of the stock

Table 3: Valuation of stock

JCPenny book value and liquidation value is $13.03. Its Net Present Value (Based on Net Income) and Net Present Value (Based on Free Cash Flow) is $zero since company is running into loss.

Risk / Opportunity

Risk vs. Opportunity ratio may be defined as the comparison between the strength of the opportunity and the risk involved in the investment. For JC Penny, the opportunity is 6x of the risk based on 52 week’s analysis and 10x based on 5 year’s analysis. (See chart 1 & 2)

Price Earnings Ratio

Price Earnings Ratio for JC Penny is lower than the Mining & Metals – Specialty industry. This shows that there is a potential to grow in JC Penny to align with industry.

Dividend Yield

Dividend yield is yet another factor which an investor needs to know before investing. Generally, a dividend paying company is considered to be a mature company in their business as it does not have any investment opportunities to grow and earn more than their capital cost. These companies are consistently making profit. Since these companies make consistent profit and they do not have any opportunity to invest further, they distribute dividend to their shareholders. Big returns cannot be expected by investing in these companies, but we are at the least risk in investing in the same.

JCPenny is a having a dividend yield of Nil. However, the company should be considered as dividend paying company since JCPenny stoped paying dividends a year before when it start running into losses. It can be assumed that once the company start making profit will the the dividend as well.

Conclusion

Based on the above analysis, it is worth investing in JC Penny. The value of the investment is less risky than the opportunity available.

Related Links

http://www.theglobeandmail.com/globe-investor/markets/stocks/chart/?q=JCP-N

http://www.reuters.com/finance/stocks/JCP/key-developments/article/2744153

Comments are closed.

%d bloggers like this: