JC Penney Met With The Sell-Side: Here's What Happened

J C Penney Company Inc (NYSE: JCP)’s CEO Marvin Ellison and CFO Edward Record met with the sell side on Monday. After the meeting, Credit Suisse analysts Michael Exstein and Anjani Vedula reiterated a Neutral rating and $7.00 price target on the stock, and shared some takeaways from the event.

“The message was multi-dimensional,” they noted. “While the middle market space remains very challenging, JCP has multiple opportunities for both market share and profit improvement.” Management made emphasis on merchandising opportunities as they expand their private label offerings, the company’s late arrival to “omnichannel” retail, and its commitment to growing this business over the year by ameliorating its online assortments and fully rolling out its “buy online, pick-up at store,” option.

Finally, Ellison and Record went into the company’s new customer loyalty program and its goal of better leveraging the “beauty side” of J C Penney, which includes the Sephora brand and the beauty salons.

Overall, the experts pointed out that, while the company’s turnaround “seems to be catching momentum at present,” the middle market (particularly in apparel) remains “a treacherous marketplace with new competitors entering, e-commerce becoming a bigger factor (changing the historic profit formula) and deflationary price points.”

All of the issues mentioned above lead the analysts to think that the ongoing progress that J C Penney’s management team outlined on Monday will not be constant. “In the short term, seasonal trading and the obvious momentum, at least relative to its peers, would suggest that these shares are being given the benefit of the doubt for now,” they concluded.

However, they added, the stock’s valuation seems to be starting to get a bit expensive, especially when medium term prospects of the company and the segments it competes in are taken into account.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.