The retail space seems to be brimming with confidence driven by factors like the slump in crude prices, increase in consumer spending, gradual housing market recovery and improvement in the labor market. Also, the Fed’s recent decision of hiking the interest rate by 25 basis points underscores the economy’s underlying strength, which is another tailwind for the retail environment.
Hence, it would be feasible on your part to add a few retail stocks to your portfolio that have solid fundamentals and could provide a sound investment opportunity. Here we have highlighted one departmental retailer – J. C. Penney Company, Inc. JCP that carries a Zacks Rank #2 (Buy) and has jumped about 10% year to date.
Apart from this, there are various factors that highlight J. C. Penney’s growth prospects.
Impressive Earnings History & Estimate Revisions
J. C. Penney appears compelling from the earnings perspective. This Texas-based retailer registered positive earnings surprises in three out of the past four quarters. In third-quarter fiscal 2015, the company posted an adjusted loss of 47 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 58 cents as well as the year-ago loss of 77 cents.
Also, revenues of $2,897 million exceeded the Zacks Consensus Estimate in addition to advancing 4.8% year over year. Sales improved across all regions, especially in the western and southern regions of the country, with Men’s, Home, Footwear, Handbags and Sephora being the best performing categories.
Following the company’s better-than-expected results, the Zacks Consensus Estimate has been portraying an uptrend, improving to a loss of $1.20 per share for fiscal 2015 and a loss of 28 cents per share for fiscal 2016, from loss estimates of $1.28 for fiscal 2015 and 46 cents for fiscal 2016, respectively, over the past 60 days. Clearly, a positive sentiment is palpable among analysts covering the stock.
Favorable Growth Score
Who doesn’t want a portfolio that generates higher returns? However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the growth perspective. To make the task easy, Zacks has designed the new Style Score System.
The attractiveness of J. C. Penney as an investment option is also confirmed by its Growth Style Score of ‘B’. The Growth Style Score combines conventional growth metrics with a thorough analysis of the company’s income statement, balance sheet and statements of cash flows to evaluate its financial health and the sustainability of its growth trajectory. Back-tested results show that stocks with a Growth Style Score of ‘A’ or ‘B’, when combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best upside potential.
Inherent Strength
Coming to J. C. Penney’s fundamentals, we note that the company has been focusing on remodeling, renovating and refurbishing its stores with special focus on the high-margin center core department, to enhance customer shopping experience and drive traffic. Moreover, we believe J. C. Penney’s efforts to further the reach of national and especially private-label brands, through effective marketing campaigns and point-of-sale technology initiatives, will help improve gross margins. The company has also made investments to boost supply chain efficiency. Additionally, the company is widening its assortments, enhancing omni-channel reach, increasing marketing and store selling hours, and reinstating the JCP Rewards program to boost overall performance.
All these factors make J. C. Penney appear promising, making it a solid choice for investors.
Other Stocks to Consider
Investors interested in the retail space may also consider other well-ranked stocks such as Abercrombie & Fitch Co. ANF and American Eagle Outfitters, Inc. AEO, each sporting a Zacks Rank #1, and Foot Locker, Inc. FL, with a Zacks Rank #2.
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