Tuesday, April 20, 2010

Market yawns as JC Penney outlines "long term" plans (JCP)

Is that all?  The market has sent shares of JC Penney lower today, as the company's 2010-2014 plans are largely reflected in the stock.

Some of the details of the department store's plans to accelerate its "transformation:"

  • By the end of fiscal 2014, the Company expects total sales to increase over $5 billion to reach approximately $23 billion. This is expected to be driven primarily by comparable store sales growth.

  • Gross margin is expected to increase to approximately 40 percent of sales, but total operating expenses should decline as a percent of sales, and operating income is expected to steadily increase over the period and be approximately 9 to 10 percent by 2014. This is in the range of the Company’s historical peak of 9.7 percent achieved in 2006.

  • After 2010, EPS growth, adjusted for the pension expense impact, is expected to achieve a 25 percent compounded annual growth rate over the following four year period to bring expected EPS for 2014 to over $5.00 per share.

  • The Company’s cash flow is expected to increase from approximately $200 million in 2010 to $500 million in 2014.

  • Capital expenditure levels are expected to increase over the period to include new store growth as the commercial real estate market and consumer economy recover. In the early years of the Plan, capital expenditures will be focused on ongoing existing store renovation and the continued rollout of the highly successful Sephora inside JCPenney concept.

  • As I look at these details, I find the shares fully valued.  The company thinks they'll make $5.00 per share in earnings in 2014, so the stock might be worth $75....in 2014!

    An aggressive Free Cash Flow Yield (FCFY%) for this company would be 7.5%.  Adding in cash and discounting that figure back to current levels shows that the market is actually quite smart, valuing the company appropriately given the newly articulated guidance.

    Copyright 2010 AlphaNinja

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