J.C. Penney Upgraded On Recovering Sales Trends

Deutsche Bank upgrades retail clothing giant J.C. Penney (JCP) from Hold to Buy, citing strong channel checks and valuation:

We believe recent sales trends have improved at the department stores as indicated by several channel checks & the ISI survey. It is not clear if this is being driven by the stimulus checks or more seasonally correct temperatures.

We find JCP valuation levels are particularly attractive, especially considering earnings est. are very reliable here and as such, we are raising our earnings ests. further above consensus and also raising our price target. We recommend purchase of JCP shares as a value story, with a compelling risk/reward profile. Buy JCP.

It seems odd that DB is confident of the “recovering sales” story given that they admit that “it is not clear if [the sales rebound] is being driven by stimulus checks or more seasonally correct temperatures.” What happens if the bounce is entirely due to rebate checks and sales snap back next quarter?

Regardless, DB seems confident of favourable comps in June:

After JCP posted sales during the month of May of ‐4.4% vs. ‐0.9% LY and at the better end of the ‐7% to ‐4% guidance, we believe that JCP could post comps for the month of June 1,000bps better than the low end of the ‐7% to ‐4% plan (vs. ‐0.7% LY).

Target remains $45.

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