Will J. C. Penney (JCP) Miss Earnings Estimates in Q3?
J. C. Penney Company, Inc. (JCP) is slated to report its third-quarter fiscal 2014 results on Nov 12, 2014. In the last quarter, it posted a positive surprise of 23.5%. Let’s see how things are shaping up for this announcement.
Factors Affecting This Quarter
Lower-than-expected sales in September coupled with a difficult retail backdrop have compelled management to trim the third-quarter outlook on Oct 8, 2014. Comps are now expected to rise in the low-single digits as against the earlier projection of mid-single digit growth. Though guidance for all other key metrics was reiterated, it did not please investors and shares nosedived over 10% on the day. Moreover, several new initiatives outlined for future growth were also eclipsed. Following the announcement estimates for the quarter have been revised downwards considerably.
Although the first half of the year witnessed a strong recovery, in this quarter, traffic woes have returned. It would get tougher for the company if it misses estimates as it will bring forth serious liquidity concerns and jeopardize its EBITDA (earnings before interest, taxes, depreciation, and amortization) target. On Oct 8, the company’s management set down a target of achieving $1.2 billion in EBITDA by 2017, which can only be met by continuously increasing sales and keeping costs under control.
Earnings Whispers?
Our proven model does not conclusively show that J. C. Penney is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here, as you will see below.
Zacks ESP: ESP for J. C. Penney is -3.61%. This is because the Most Accurate estimate stands at a loss of 86 cents, while the Zacks Consensus Estimate is pegged at a loss of 83 cents a share.
Zacks Rank: J. C. Penney’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some other companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat:
Best Buy Co., Inc. (BBY) has an Earnings ESP of +4.17% and a Zacks Rank #1 (Strong Buy).
The Kroger Co. (KR) has an Earnings ESP of +3.28% and a Zacks Rank #2 (Buy).
Dollar Tree, Inc. (DLTR) has an Earnings ESP of +1.56% and a Zacks Rank #2.
Read the Full Research Report on DLTR
Read the Full Research Report on KR
Read the Full Research Report on JCP
Read the Full Research Report on BBY
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