Sometimes “turn-around” stocks
never turn fully around. Companies like K-Mart, Kodak, Drug Emporium and
even Sears have demonstrated just how difficult it can be to change the
direction of a brand that is faltering and/or reinvent a company after it has
J.C. Penney (JCP - Analyst Report) has been trying to
reinvent itself for some time now. The company has been searching for its
soul and its place between higher end department store competitors like Macys,
Neiman Marcus and Sachs and the discounters like Target, Walmart and Marshalls.
It’s been a year since the
struggling department store instituted a drastic plan to get rid of most sales
in favor of everyday low prices and dramatically change the look and feel of
thier stores. CEO Ron Johnson is working to transform every part of
the business from the brands it carries to the store experience, but the
overhaul has been more challenging than expected and shareholders are getting
Losses and more Losses
At the end of the month (February 27th) JCP is expected to report earnings.
According the Zacks ESP, which is registering a negative 130% on an expected
loss of 13 cents, it won’t be pretty in all likelihood. In fact, JCP has
logged four consecutive quarters of big sales drops and net losses since it
implemented its new pricing strategy.
Even though the company has credit
available, the big concern is that they won't be able to stem the decline in
sales in time to finance the transformation of the stores, if they can even
accomplish that successfully.
Analysts Losing Confidence
Shares are down by more than 60% in the last year, yet analysts are still
reluctant to step in and buy. JCP is a Zacks Rank 5 and is rated
underperform by our team.
The Magnitude of analysts’ estimates
has been getting more bearish over the last quarter as projections continue to
drop; the average analyst still has JCP rated as a sell.
The bottom line is that Penney may very
well pull off a miracle and turn itself around, but with the market as healthy
as it is and with so many better quality stocks to buy, you might want to save
the high risk trades for another day. Perhaps we can re-evaluate JCP once
it begins to show signs of stability and growth; you may not catch the bottom,
but the potential dangers will be dramatically reduced.
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