Citi Upgrades JC Penney to Buy
Analysts at Citi Upgraded the rating on JC Penney (JCP) to “Buy” from “Neutral”. It raised the price target on JC Penney (JCP) to $11.00 from $7.50 suggesting 30% upside
“We’re upgrading JCP to Buy based on our conviction that JCP can continue to deliver positive comp store sales in-line with FY14 guidance (+MSD). We believe this can happen as JCP fixes home, focuses on restocking basics & private branded product, and edits out inappropriate merchandise. Achieving 1Q & FY guidance will mitigate investor fear on liquidity concerns and drive profitability and the stock higher” Citi said in a note to clients.
“We acknowledge that JCP is early in this go-forward phase but we like the risk/reward given our conviction that just making basic changes will support guidance for growth in 2014. We believe 4Q’s +2% comps on better conversion, transaction size, & units w/ high levels of customer service bodes well for con’t momentum and share gains.” it added.
Citi says that the investor fear of JCP’s liquidity position is overdone “Investor fears remain on JCP’s liquidity position which we believe are overdone as we model working capital to be a source of $150-$200mm in 2014. JCP’s 4Q cash balance $1.515bn & total available liquidity stood at $2.024bn. We expect JCP to achieve +MSD comps 2014E, with significant gross margin improvement, yielding ~$2bn end of year liquidity w/ trough position over $1bn (likely 3Q). Each comp point drives +/- $30mm in contribution margin”
Shares of JC Penney (JCP) closed at $8.42 on Monday.
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