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Goldman Warning Tramples J. C. Penney (JCP) Shares to 12-Year Low

Tickers in this article: JCP

NEW YORK (TheStreet) - J. C. Penney  shares plunged to a 12-year low on Wednesday following a Goldman Sachs warning of liquidity concerns.

J. C. Penney has recovered slightly from its earlier 16.5% loss, trading 13.2% lower to $10.33 as of 12:45 p.m. EST. Wednesday's trading volume exceeded the company's one-month daily average volume with 68.82 million shares having changed hands compared to 26.51 million. Overall, J. C. Penney is lagging the S&P 500 which is up 0.02%.

"Only a better retail climate, perhaps spurred by lower gasoline prices, can get Penney going in the right direction," said Jim Cramer in his column on the Real Money subscription service.

The embattled department store is seeking further fundraising opportunities after borrowing more than $3 billion in the year to date, $2.25 billion of which came from Goldman. In the last two quarters since February 2, J. C. Penney had negative free cash flow of $2.13 billion. Bloomberg reports the retailer is considering borrowing against its real estate holdings worth an estimated $4.07 billion.

TheStreet Ratings team rates J. C. Penney as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate J. C. Penney a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, disappointing return on equity and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:
  • The debt-to-equity ratio is very high at 2.51 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.44, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Multiline Retail industry and the overall market, J. C. Penney's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for J. C. Penney is currently lower than what is desirable, coming in at 29.55%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -22% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$708 million or 2112.5% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • J. C. Penney has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, J. C. Penney reported poor results of -$4.49 vs. -$0.73 in the prior year. For the next year, the market is expecting a contraction of 33.5% in earnings (-$6 vs. -$4.49).