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No ‘Miraculous’ J.C. Penney Recovery Ahead: Analyst

J.C. Penney’s stock will likely stay in a range of $25 to $30 in the near term, said one analyst, who warned investors against expecting any “miraculous” recovery in the company’s shares soon.

JC Penney
JC Penney

Charles Grom, a senior retail analyst at Deutsche Bank, told CNBC’s “Squawk on the Street” that he has a “hold” rating on the stock along with a $38 price target.

“I think directionally, same-store sales (are) probably likely to stay down double-digits for the rest of the year,” Grom said. “I don’t think you’re going to see any miraculous recovery, mainly because we still have yet to cycle the two big promotional periods in 2012 — back-to-school and Christmas.”

The retailer’s earnings missed expectations on Tuesday, as the company said its gross margin was hit by “lower-than-expected sales” and the impact of taking “deeper seasonal markdowns.” It also announced that it would suspend its dividend.

Despite two big promotional holidays occurring during the quarter, Valentine’s Day and Presidents Day, same-stores sales fell 18.9 percent during the period. Still on the horizon are the back-to-school period and Christmas, which traditionally provide significant boosts to retail revenue.

“I’d be nervous if I were them that that’s the time of year when their competitors — Macy’s, Kohl’s, Old Navy, Gap, Target, etc. — are really going to amp up their message and get more promotional,” Grom said. “I think that could hurt J.C. Penney.”

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Grom recently met with CEO Ron Johnson to discuss the company’s earnings report and the effects so far of its transition away from sales in favor of everyday low prices. Johnson told him the company is making tweaks to its pricing strategy and expects for business to improve gradually.

Grom is more bullish on one J.C. Penney competitor — Target, which released its earnings reporton Wednesday. In two positive signs, Target reported flat inventory levels and a 5.3 percent rise in same-store sales, its best in more than four years. He added that traffic was up more than 200 basis points in the quarter.

“I see a couple bucks of downside if (same-store sales) languish in the 3 percent range,” Grom said. “But if comps accelerate and continue to stay in this 5 to 6 percent range during the balance of the year, I think it could be a high $60 stock, and I like that risk-return here.”

—By CNBC’s Katie Little

Additional News: J.C. Penney’s Makeover

Additional Views: Reaction to J.C. Penney’s Earnings

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CNBC Data Pages:

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Disclosures:

Charles Grom’s firm owns shares of J.C. Penney and also has an investment banking conflict with the company.

Disclaimer

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Follow Katie Little on Twitter @katie_little.

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