8/13/2019 Imperial Capital Halves J.C. Penney Company, Inc. (JCP) Price Target

1/2

2/12/2014, 11:2mperial Capital Halves J.C. Penney Company, Inc. (JCP) Price Target

Page ttp://www.valuewalk.com/2014/02/imperial-capital-halves-j-c-penney-company-inc-jcp-pt/

Imperial Capital Halves J.C. Penney Company, Inc. (JCP) Price Target

Imperial Capital analysts have maintained their Underperformrating on J.C. Penney Company, Inc. (NYSE:JCP) and lowered their pr

target to $2.50 from $5.00.

Analysts Mary Ross-Gilbert and Seweryn Sztalkoper of Imperial Capital, however, maintained theirBuyrating on the longer-dated sen

notes of JCP.

Substantial debt burden

The Imperial Capital analysts anticipate JCPs financial results to improve significantly over the next couple of years. However, the

analysts believe J.C. Penney Company, Inc. (NYSE:JCP)s increased debt levels associated with cash burnand the anticipated

improvement in EBITDA doesnt sufficiently justify JCPs current price.

The analysts halved J.C. Penney Company, Inc. (NYSE:JCP)s price target to $2.50 reflecting the optionality of the shares and their

valuation is based on their lower 2015 EBITDA estimates of $508 million and a midrange valuation multiple of 6x. This is in consonanwith the multiple commanded for Macys based on the consensus EBITDA estimate for FY 15.

However, the Imperial Capital analysts point out that Macys has an EBITDA margin of over 15% and is solidly executing and delivering

strong performance, despite facing consumer headwinds and intensified promotional activity.

Longer-dated senior notes get BUY rating

The Imperial Capital analysts believe J.C. Penney Company, Inc. (NYSE:JCP)s longer-dated senior notes maturing in 2020-2097 will

trade-up by over 10 points for potential returns of about 30%, aided by anticipated favorable operating momentum in F1Q14 and F2Q1

benefiting from the restoration of assortments in the home department, which was closed for the better part of 2013, reduced excess

clearance activity and continuing improvements to merchandise categories throughout the store. The Imperial Capital analysts mainta

theirBuyrating on JCPs longer-dated senior notes maturing in 2020-2097.

The analysts however maintain their Holdratings on JCPs shorter-dated senior notes maturing 2015-2018. The analysts believe the

bonds may also trade-up on anticipated favorable operating momentum but to a lesser degree than the longer-dated bonds. However, t

analysts believe if J.C. Penney Company, Inc. (NYSE:JCP) is forced to restructure down the road, prices on the shorter-dated bonds w

likely compress to match prices on the longer dated bonds.

The following table captures J.C. Penney Company, Inc. (NYSE:JCP)s proforma select loans and securities covering both longer-dated

http://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JCPhttp://ify.valuewalk.com/wp-content/uploads/2013/07/J.C.-Penney-Company1.jpghttp://ify.valuewalk.com/wp-content/uploads/2013/07/J.C.-Penney-Company1.jpghttp://ify.valuewalk.com/wp-content/uploads/2013/07/J.C.-Penney-Company1.jpghttp://ify.valuewalk.com/wp-content/uploads/2013/07/J.C.-Penney-Company1.jpghttp://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JCPhttp://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JCPhttp://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JCPhttp://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JCPhttp://www.valuewalk.com/2013/06/j-c-penney-capital-expenditures/http://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JCPhttp://ify.valuewalk.com/wp-content/uploads/2013/07/J.C.-Penney-Company1.jpghttp://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JCP

8/13/2019 Imperial Capital Halves J.C. Penney Company, Inc. (JCP) Price Target

2/2

2/12/2014, 11:2mperial Capital Halves J.C. Penney Company, Inc. (JCP) Price Target

Page ttp://www.valuewalk.com/2014/02/imperial-capital-halves-j-c-penney-company-inc-jcp-pt/

and shorter-dated senior notes:

The analysts point out that their valuationof J.C. Penney Company, Inc. (NYSE:JCP) highlights the limited recoveries to the unsecured

debt, which explains the analysts recommendation to hedge a long position in the longer-dated notes by shorting the shares and/or th

shorter-dated notes.

Liquidity analysis

Turning their focus to J.C. Penney Company, Inc. (NYSE:JCP)s liquidity estimates, the analysts anticipate JCP could end FY 14 with

$1.43 billion in cash for total liquidity of $2.8 billion. The analysts point out that following their lower earnings and commensurate hig

cash burn estimates of $564 million, $185 million, $431 million in F1Q14 to F3Q14 respectively, they anticipate the low point in JCPs

total cash position of $507 million on 11/1/14 for total liquidity of $1.357 billion. The following table highlights JCPs 2014 quarterly

liquidity analysis outlook:

http://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JCPhttp://www.valuewalk.com/stock-data/?stock_symbol=NYSE:JCPhttp://www.valuewalk.com/2013/12/sac-capital-j-c-penney/