J.C. Penney Company, Inc. (NYSE:JCP) has been in a period of decline over the past several years as department stores in general have been forced to contend with competition from Internet retailers such as Amazon as well as discount retailers including Target and Wal-Mart. Its stock price is down 46% in the last year. Even billionaire Bill Ackman’s involvement as an activist, helping name Ron Johnson to be J.C. Penney Company, Inc. (NYSE:JCP)’s CEO, has failed to turn around the company and in fact conditions for the company have continued to worsen.
The first quarter of J.C. Penney Company, Inc. (NYSE:JCP)’s fiscal year ended in early May 2013. Revenue fell by 16% versus a year earlier, essentially matching the decline in comparable store sales- a remarkably steep decline for a department store. Operating and net losses were more than double what they had been in the prior year period, and in this quarter alone the company lost $1.58 per share. Cash flow from operations was also negative, forcing J.C. Penney to draw on their short term borrowing capabilities.
Wa
Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds and other notable investors as part of our work researching investment strategies (we have discovered, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). We can also use this database to track interest in individual stocks; for example, Tiger Global Management initiated a position of 5.4 million shares in J.C. Penney Company, Inc. (NYSE:JCP) during the first quarter of 2013 (see Tiger Global’s stock picks). Of course, the retailer is one of Pershing Square’s significant holdings as well (find Ackman’s favorite stocks).
One peer for J.C. Penney Company, Inc. (NYSE:JCP) is Kohl’s Corporation (NYSE:KSS). Kohl’s also struggled during its fiscal Q1, though results were at least somewhat better: sales were down “only” 1% compared to the same period in 2012 with a 5% decrease in net income. The department store is valued at trailing and forward earnings multiples of 13 and 11, respectively, so if it could manage to hold its profits steady then it could be a prospective value stock. However, at least for now, financials are weak enough that investors should be wary of depending on Kohl’s to maintain its current business and should probably shy away from buying.
In addition, Macy’s is valued at only a small premium to Kohl’s in terms of trailing earnings with a P/E multiple of 14. Analysts expect at least modest growth on the bottom line over the next several years, and as a result the forward earnings multiple is 11 with a five-year PEG ratio below 1. While investors shouldn’t be too confident that Macy’s will continue to grow its same store sales in revenue in what is such a challenging environment for its peers, its relative prosperity and only slightly higher valuation than Kohl’s does make it at least a potential value play.
As a result Macy’s appears to be a somewhat more interesting target than Kohl’s and certainly a less risky pick than J.C. Penney. While the latter retailer could certainly improve in the long term, analysts are generally expecting it to be unprofitable next year and considering how poorly revenue has been doing it does not seem worth buying.
Disclosure: I own no shares of any stocks mentioned in this article.
