Can J.C. Penny’s Stock Rebound?

With shares of J.C. Penney (NYSE:JCP) trading around $8, is JCP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

J.C. Penney is a retailer operating more than 1,000 department stores in just about every state in the U.S. and Puerto Rico. Its business consists of selling merchandise and services to consumers through its department stores and website. It sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products through Sephora, and home furnishings. The company has not done too well in recent years, but it is doing what it can to be a top provider of apparel and related products.

J.C. Penney has closed a new credit facility that executives say will provide the retailer with more flexibility when cash is needed. Cash burn has been a concern among industry watchers as the retailer attempts to recover from a failed turnaround under onetime Appleexecutive Ron Johnson. The new $2.35 billion senior secured credit facility is replacing a $1.85 billion facility set to mature in April 2016. The new facility has better pricing terms than the previous one, according to J.C. Penney, and includes a $1.85 billion revolving credit line, as well as a $500 million term loan. The company said Monday that the loan’s proceeds would be used to pay down the previous facility.

T = Technicals on the Stock Chart Are Mixed

J.C. Penney stock has been getting hit hard in the last couple of years. The stock is currently trading sideways and may need time to stabilize. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, J.C. Penney is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of J.C. Penney options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

J.C. Penney options

49.83%

16%

14%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of Tuesday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.