J. C. Penny is one of the oldest apparel and home furnishing retailers in the United States, operating over 1,000 store locations in the U.S. and Puerto Rico and its online website.
4 Big Beats in a Row
Last year, Wall Street left J.C. Penney for dead as earnings and revenue spiraled lower, pushed by the relentless attacks on the old model department store.
It looked like the retailer was going to go the way of Montgomery Ward.
But the company got a new CEO in 2015 in Marvin Ellison. He had been at Home Depot and brought Home Depot’s sensibility over to the clothing retailer.
It looks to be working. J.C. Penney has beat the street 4 quarters in a row.
It’s second quarter beat was by $0.10, as the company reported a loss of $0.05 versus the Zacks Consensus of $0.15.
Comparable store sales rose 2.2% as its top selling divisions were beauty and cosmetics company Sephora, Home and Footwear and Handbags.
Geographically, the Ohio Valley and the Pacific were the two best performing regions.
Beauty and Appliances
Its alliance with Sephora continues to give the stores a big boost. It will be rolling out more in-store Sephora locations over the next few years.
It also recently started an aggressive national advertising campaign touting its appliances. It will roll out appliance sales in 500 stores and on jcp.com.
To compete with online retailers, it is also rolling out same day in-store pickup.
Earnings Estimates Rise
In August, J.C. Penney reaffirmed its full year guidance which included comparable store sales of 3% to 4%.
It also presented its 3-year strategy for growth which included annual compounded comparable sales growth of 3%.
The analysts liked what they heard as 10 estimates were raised for fiscal 2016 in the last 2 months. 1 analyst recently lowered estimates however.
Still, the analysts believe J.C. Penney will return to profitability this year. The fiscal 2016 Zacks Consensus Estimate jumped to $0.16 from $0.05 in that time period.
The company lost $1.03 last year so that is earnings growth of 115%.
Analysts are also bullish about fiscal 2017. The 2017 Zacks Consensus Estimate has jumped to $0.72 from $0.69 in the last 30 days.
That’s earnings growth of 345%.
The CEO Dives In and Buys More Shares
It’s not just the analysts who are buying into the turnaround story.
The new CEO has bought shares twice in 2016. His first open market purchase was in march 2016 when he bought 50,000 shares.
He recently bought another 50,000 shares on August 25, 2016.
He has over 2.5 million shares and gets awards from the company. When an insider buys more shares using their own cash it sends a bullish signal.
Many buy because they believe the shares are likely to go higher.
Are Shares Cheap?
Share sold off to multi-year lows in recent years on the belief that the company may not survive.
They haven’t recovered much and have yet to break out to even a 2-year high.
Now that the company is expected to be profitable, based on fiscal 2016’s numbers, it’s not cheap. It trades with a forward P/E of 58.
But if you believe the company could make $0.72 next year, then it’s trading at about 12.5x. And that’s an attractive valuation.
For investors looking for a turnaround story in the apparel industry, J.C. Penney is definitely one that should be on the short list.
Now, which stocks should you sell?
As a Zacks Rank #1 Strong Buy, this Bull of the Day deserves consideration. But today there are 220 Zacks Rank #5 Strong Sells that demand even more urgent attention. If any of these are lurking in your portfolio, they should be removed immediately. Since 1988, such stocks have actually performed more than 11X worse than the S&P 500.