Morgan Stanley Cuts Retailers JCPenney and Gap

Posted Feb 16th 2010 9:20AM by Mark Fightmaster
Filed under: Analyst Upgrades and Downgrades, Penney (J.C.) (JCP), Gap Inc (GPS)

Brokerage powerhouse Morgan Stanley decided to take its downgrade stick to retailers Gap (GPS) and JCPenney (JCP). Analysts cut the two retailers, citing concerns about margins at both companies.

When referring to GPS, Morgan Stanley stated, "Contrary to the consensus view, we are forecasting a contraction in margins, returns and earnings per share in 2010." Morgan Stanley attributed its forecast to a weak top-line forecast for GPS's North American business, leading to a predicted drop of 1.5% in same-store sales. The consensus estimate calls for a 0.5% rise in same-store sales from the trendy retailer. As for JCP, Morgan Stanley was much more succinct, noting that gross margins are likely at their peak.

Technically, GPS is under considerable pressure from its descending 10- and 20-week moving averages. These trendlines have pushed the stock lower since the end of October 2009, Last week's rally has found a possible conclusion in these trendlines and the $20 level. As for JCP, it has met the same fate as GPS.

JCP's 10-week trendline has forced the stock into a steep descent. This drop has pushed the shares below the $26 level for the first time since April/May 2009. This morning's downgrades will not help either of these stocks as they try to rally.

Watch for both to continue their struggles, as retailers tighten their purse strings and cut back on purchases.

Tags: Gap, GPS, inthenews, JCP, JCPenney