The shares of J.C. Penney Company, Inc. (JCP), first discussed here on April 13, 2009, at a price of $26.52, have meandered near $33 for the past three months, but just look on that sideways action as a chance to scoop-up shares of a battle-tested retailer.
JCPenney's fundamental picture remains encouraging. JCPenney has adroitly adjusted to the U.S.'s frugal consumer era. The retailer has effectively aligned product quality/style with its target demographic, and also prudently and tactfully invested in new brands.
Meanwhile, good inventory management and expense controls have aided the bottom line. Modest new store expansion plans for FY2012 are also consistent with a business model that's endured amid the retail sector's rout. In other words, JCP is a retail sector survivor and will able to hold its own for what undoubtedly will be more-scarce consumer dollars in the years ahead. In FY2012, same store sales should increase 2% to 3.5%.
Rising costs for clothes -- particularly cotton-based -- represent one hurdle that could weigh on the bottom line, but incremental store traffic growth should be enough to enable JCP to best analysts' earnings consensus estimates for FY2012. Above-average U.S. monthly job growth -- possible, but obviously not guaranteed in 2011 -- would serve as a tailwind.
The Thomson Reuters First Call FY2011/FY2012 EPS estimates for JCP are $1.64 to $1.84.
2011 Outlook: I view JCPenney as a long-term play, but if you're looking to sell JCP within the year, it's probably best to take your profits after it rises to $37 to $39, if it fails to clear $40.
Stock Analysis: I consider JCPenney to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, and I liked them enough to buy, I'd consider buying a 25% position in JCP now. I'd put a sell/stop loss at $17.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.