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Fitch Downgrades J.C. Penney

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Fitch Ratings downgraded J.C. Penney Company, Inc. (JCP - Free Report) on expectations of the company spending more cash in 2013 than projected earlier. The rating agency lowered the company’s issuer default ratings (IDRs) to junk status of “CCC” from “B-”.

Fitch anticipates J.C. Penney to spend $2.8–$3 billion in cash in 2013, a billion dollars more than its May forecast. Moreover, to procure cash, the company is seeking to offer about 96.6 million shares.

J.C. Penney has been in troubled waters for quite some time, with decreasing revenues and higher losses. The company has not shown any signs of recovery in the recent past. This is evident from its 7th consecutive quarter of sluggish results on Aug 20. The company has been constantly lagging its peers, Macy’s Inc. (M - Free Report) , Target Corp. (TGT - Free Report) and Kohl’s Corp. (KSS - Free Report) in terms of performance.

The company remained in the red zone with adjusted loss per share of $2.16 in the second quarter of fiscal 2013 that widened from the loss of 37 cents in the year-ago quarter. The Zacks Consensus Estimate for the quarter was a loss of $1.13 per share. J.C. Penney’s top line fell 11.9% to $2,663 million and missed the Zacks Consensus Estimate. Looking at the company’s earnings surprise history, we find that J.C. Penney has missed the Zacks Consensus Estimate by an average of about 523.2% in the trailing four quarters.

However, this Zacks Rank #3 (Hold) stock has taken several strategic initiatives to drive traffic and conversion. The company resorted to promotions, which could be a successful sales driver this holiday season.

Investors remain cautious about the stock amid the company’s endeavors to give itself a major facelift.

In a significant development, J.C. Penney’s board of directors in Apr 2013 discharged the Chief Executive Officer (CEO) Ron Johnson of his duties after 17 months, as his ambitious transformational ideas failed to materialize. Consequently, the company’s former CEO, Myron E. (Mike) Ullman, III was reinstated in his post.

However, we have to wait and see whether the initiatives undertaken to boost the stock will prove to be successful.

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