J.C. Penney: Dusty, But Far From Dead

This retailer is looking more and more like a fading star: Sales and earnings are down, and the stock has been lackluster at best, selling at 53, off its 52-week high of 68.

Even so, some savvy investors have started buying. One New York investment manager says that based on a number of valuation measures, J. C. Penney, one of the nation's largest general merchandisers, with more than 2,000 stores in 50 states and Puerto Rico, is grossly undervalued. He also says that recurrent speculation about a takeover is back and likely to "hit the market soon." There are whispers of a friendly bid of $65 a share from a European conglomerate. If Penney's stock stays near its current level, says this pro, the group "will accelerate its plan to make an offer."

Several analysts are becoming upbeat on Penney, too. Based on its price-earnings ratio, the company is "the cheapest in our department-store group -- and one of the cheapest among all retailers," says Wayne Hood of Prudential Securities, who has switched his call from "sell" to "buy." Hood notes that Penney's p-e represents a 35% discount from the market's average. Its yield is about 5%.

Hood expects earnings comparisons to get better in the fiscal year's second half. He sees profits of $4.30 a share in the year ending Jan. 30, 1992, and $5.30 in fiscal 1993, vs. 1991's $4.59. In an industry struggling with debt and weak cash flow, Penney has a debt-to-capital ratio of 48% for 1990. Hood expects that to fall to 44% by the end of 1992. That's low for a big retailer.

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