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Goldman Sachs Cuts J.C. Penney to 'Underperform'


Goldman Sachs downgraded J.C. Penney (JCP) to underperform from in-line. On Tuesday, the department store operator reported first-quarter earnings per share of 20 cents.

Analyst George Strachan says the 20-cent first-quarter EPS (pro forma) was boosted by a 5-cent per share real estate sale gain, and was partially offset by a 3-cent per share restructuring charge for its catalog business. He says the company's policy has been to regard one-time restructuring charges as recurring, leaving first-quarter EPS at 12 cents.

Strachan cut his $1.45 fiscal year 2004 (January) EPS estimate to $1.17. At yesterday's close, the stock traded at 16 times his new fiscal year 2004 EPS estimate, vs. the group's 12.6 times average. With continuing underperformance at Eckerd, higher planned inventory levels, fierce competitive dynamics, and an uncertain outlook, he downgrades Penney shares.


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