Is J.C. Penney Poised to Head Higher?

With shares of J.C. Penney (NYSE:JCP) trading around $9, is JCP an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

J.C. Penney is a retailer operating more than 1,000 department stores in just about every state in the U.S. and Puerto Rico. Its business consists of selling merchandise and services to consumers through its department stores and website. It sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products through Sephora, and home furnishings. The company has not done too well in recent years, but it is doing what it can to be a top provider of apparel and related products.

J.C. Penney revealed in its company filing that Ron Johnson, J.C. Penney’s former chief executive officer, didn’t receive severance upon his departure from the company, and neither did Chief Talent Officer Daniel Walker, who left in April. Michael Kramer, the former chief operating officer, did get a payout, though the company reduced his termination agreement by $1 million. He was paid a total of $2.35 million last year. Bloomberg reported the news Saturday, noting that the lack of a severance payment for Johnson reflects J.C. Penney’s controversial feelings toward the former CEO.

When Johnson left Apple (NASDAQ:AAPL) for J.C. Penney in 2011, there was optimism that he would be able to turn the retailer’s disappointing sales around and revive the company. However, it’s safe to say those expectations were not met, as J.C. Penney’s stock dove 25 during Johnson’s tenure. Myron Ullman, current CEO and the man who retook the reins from Johnson when he left, made $2.39 million in total compensation last year, including more than $810,000 in salary, Bloomberg reported Saturday. For the portion of the year he worked, Johnson received $658,921 in salary.

T = Technicals on the Stock Chart Are Mixed

J.C. Penney stock has been getting hit hard in the past couple of years. However, the stock is currently surging higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, J.C. Penney is trading between its rising key averages, which signals neutral price action in the near-term.

JCP

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of J.C. Penney options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

J.C. Penney options

78.99%

3%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Average

Average

May Options

Average

Average

As of Tuesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on J.C. Penney’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for J.C. Penney look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

104.37%

246.43%

-297.01%

-110.67%

Revenue Growth (Y-O-Y)

-2.63%

-5.06%

-11.88%

-16.4%

Earnings Reaction

5.86%

8.38%

5.97%

-4.15%

J.C. Penney has seen increasing earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have optimistic about J.C. Penney’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has J.C. Penney stock done relative to its peers – Macy’s (NYSE:M), Sears (NASDAQ:SHLD), and Kohl’s (NYSE:KSS) — and sector?

J.C. Penney

Macy’s

Sears

Kohl’s

Sector

Year-to-Date Return

0.77%

10.81%

-3.22%

-2.24%

2.53%

J.C. Penney has been a relative performance leader, year-to-date.

Conclusion

J.C. Penney aims to provide the latest apparel and household products to consumers and companies across most of the United States and Puerto Rico. The company revealed that Ron Johnson, J.C. Penney’s former chief executive officer, didn’t receive severance upon his departure from the company, and neither did Chief Talent Officer Daniel Walker, who left in April. The stock has struggled in recent years but is currently surging higher. Over the past four quarters, earnings are improving and revenues have been declining, which has left investors optimistic about recent earnings announcements. Relative to its peers and sector, J.C. Penney has been a relative year-to-date performance leader. WAIT AND SEE what J.C. Penney does this quarter.

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