Retail Stocks

JC Penney Company Valuation – June 2018 $JCP

Company Profile (excerpt from Reuters): J. C. Penney Company, Inc. (JCPenney), incorporated on January 22, 2002, is a holding company. The Company’s business consists of selling merchandise and services to consumers through its department stores and its Website at jcpenney.com, which utilizes applications for desktop, mobile and tablet devices. Its department stores and Website generally serve the same type of customers, its Website offers virtually the same mix of merchandise as its store assortment and other categories, and its department stores generally accept returns from sales made in stores and through its Website. It fulfills online customer purchases by direct shipment to the customer from its distribution facilities and stores or from its suppliers’ warehouses and by in store customer pick up. The Company sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products through Sephora inside JCPenney, home furnishings and appliances. In addition, its department stores provide its customers with services, such as styling salon, optical, portrait photography and custom decorating.

JCP Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of JCP – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $865,955,211 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.73 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -122.74% Fail
6. Moderate PEmg Ratio PEmg < 20 -5.43 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.66 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.73 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.93 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg -$0.51
MG Growth Estimate 12.48%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$7.38
MG Value based on 0% Growth -$4.32
Market Implied Growth Rate -6.96%
Current Price $2.76
% of Intrinsic Value N/A

J C Penney Company Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-3.03 in 2015 to an estimated $-0.51 for 2019. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into J C Penney Company Inc revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -5.43, which was below the industry average of 37.1, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.59.

J C Penney Company Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.59
Graham Number $0.00
PEmg -5.43
Current Ratio 1.73
PB Ratio 0.66
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2018
Total Current Assets $3,352,000,000
Total Current Liabilities $1,939,000,000
Long-Term Debt $4,142,000,000
Total Assets $8,305,000,000
Intangible Assets $0
Total Liabilities $6,990,000,000
Shares Outstanding (Diluted Average) 313,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.09
Jan2018 -$0.37
Jan2017 $0.00
Jan2016 -$1.68
Jan2015 -$2.35
Jan2014 -$5.13
Jan2013 -$4.49
Jan2012 -$0.70
Jan2011 $1.63
Jan2010 $1.08
Jan2009 $2.57
Jan2008 $4.93
Jan2007 $4.96
Jan2006 $4.26
Jan2005 $1.76
Jan2004 -$3.48
Jan2003 $0.95
Jan2002 $0.26
Jan2001 -$2.81
Jan2000 $1.54
Jan1999 $1.58

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.51
Jan2018 -$1.11
Jan2017 -$1.90
Jan2016 -$2.86
Jan2015 -$3.03
Jan2014 -$2.76
Jan2013 -$1.04
Jan2012 $1.09
Jan2011 $2.33
Jan2010 $2.98
Jan2009 $3.85
Jan2008 $3.82
Jan2007 $2.74
Jan2006 $1.34
Jan2005 -$0.30
Jan2004 -$1.13
Jan2003 $0.13

Recommended Reading:

Other ModernGraham posts about the company

J C Penney Company Inc Valuation – Initial Coverage $JCP

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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