JC Penney: Curb Your Enthusiasm

UBS analyst Michael Binetti and team worry that “an optimistic recovery” is already price in to JC Penney’s (JCP) stock:

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Our recent checks point to sluggish 3Q sales for JC Penney, and we fear commentary on sales trends could be a negative catalyst for the stock. If near-term [same-store sales, or] SSS are decelerating, we believe the credibility of any sustained EBITDA recovery would be damaged severely. Further, any SSS concerns would likely shift focus back to valuation—which we believe currently assumes a sustained multi-year recovery. Even in an optimistic scenario with sustained +5% SSS and gross margins rebounding to 37% (from 34.5% in ’14E), we est EBITDA will only reach $650m in 3 yrs—which would only get JC Penney back to FCF breakeven (w/$400m/yr int exp + $250m/yr minimum maint capex).

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We’ll learn more at JC Penney’s investor day on Oct. 8.

Shares of JC Penney have dropped 6% to $9.40 at 1:51 p.m.