Will J.C. Penney Continue to Be Vulnerable With Upcoming Earnings?

With shares of J.C. Penney (NYSE:JCP) trading around $8, 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 United States 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.

Jim Cramer ranked J.C. Penney a Sell. Cramer previously ranked this stock a Sell on September 27, 2013. The stock’s 52 week high is $23.10, and its 52-week low is $6.24. Cramer repeated his sell ranking on J.C. Penney, saying that the stock remains quite vulnerable to bad news given how poorly things have been going for the retailer. He recommended being ready to sell at a moment’s notice, if not getting rid of positions in the company now.

T = Technicals on the Stock Chart Are Weak

J.C. Penney stock has been getting hit hard in the past couple of years. The stock is now trading near lows for the year. 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 below its rising key averages, which signal neutral to bearish 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

104.47%

43%

41%

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

Put IV Skew

Call IV Skew

December Options

Steep

Average

January Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish 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 Decreasing 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-297.01%

-110.67%

-518.09%

16.42%

Revenue Growth (Y-O-Y)

-11.88%

-16.40%

-28.41%

-26.57%

Earnings Reaction

5.97%

-4.15%

7.37%

-16.96%

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

P = Weak Relative Performance Versus Peers and Sector

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

J.C. Penney

Macy’s

Sears

Kohl’s

Sector

Year-to-Date Return

-58.10%

18.45%

37.48%

33.03%

8.71%

J.C. Penney has been a poor relative performer, 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. Jim Cramer recommended being ready to sell at a moment’s notice, if not getting rid of positions in the company now. The stock has struggled in recent years and is now trading near lows for year. Over the last four quarters, earnings and revenues have been declining, which has produced conflicting feelings among investors about recent earnings announcements. Relative to its peers and sector, J.C. Penney has been a weak year-to-date performer. STAY AWAY from J.C. Penney stock for now.

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