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Analyst: J.C. Penney shares 'are currently worthless'

Aarthi Swaminathan
Finance Writer

J.C. Penney (JCP) reported second-quarter earnings today that fell short of analyst expectations. Shares tumbled by nearly 27% today, and one analyst is calling the stock “worthless.”

“Based on JCP’s updated and lowered guidance, we estimate JCP shares are currently worthless,” Clearview Trading Advisors analyst Rick Snyder wrote in a note to clients. “This is not hyperbole — we entered a price of $0.01 into our model.”

He added that “until I see some evidence that it may recover and improve profitability,” he would maintain his comments.

Barbara Cake, 67, cleans the jewelry counter towards the end of her shift at J. C. Penney on December 23, 2017 at the Shenango Valley Mall in Hermitage, Pennsylvania. (Photo: Dustin Franz for The Washington Post via Getty Images).

Earlier today, J.C. Penney reported a net loss of $0.32 per quarter for the quarter and missed on revenue by $30 million. Total net sales decreased 7.5% to $2.76 billion compared to the year before. Furthermore, the company is still looking for a new full-time CEO.

“There is something of a party going on in retail, with consumers spending in a relatively carefree way,” GlobalData managing director Neil Saunders wrote in a note to clients. “However, this is a party to which J.C. Penney was not invited.”

As discussed in the video above, Walmart (WMT) rose more than 9% on Thursday after stellar earnings. 

(Chart: Yahoo Finance)

‘Balance sheet is in bad shape’

Snyder warned that investors should stay away.

“The current value EBITDA doesn’t support equity value,” Snyder — referring to Earnings Before Interest, Taxes, Depreciation, and Amortization — told Yahoo Finance. “Sales and margins are declining, the balance sheet is in bad shape, [and] the profitability of J.C. Penney doesn’t support equity.”

In the note, Snyder outlines how J. C. Penney’s debt burden is hampering the company. He also highlighted J.C. Penney’s lease-adjusted leverage, which refers to how many lease obligations (i.e. rent) they owe for their stores. According to a report by Morgan Stanley last year, J.C. Penney has the second-highest lease-adjusted leverage ratios among US retailers.

Chart: Morgan Stanley via Wall Street Journal

Snyder noted that J.C. Penney’s financial position reminded him of Pacific Sunwear, a teen apparel retailer that filed for Chapter 11 bankruptcy protection in 2016.

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