Options Trade – J.C. Penney Company, Inc. (NYSE:JCP) Calls
Wednesday, May 14, 2014

**OPTIONS TRADE: Buy the JCP Aug 2014 9.000 call (JCP140816C00009000) at or under $1.10, good for the day. Place a protective stop limit at $0.45 and a pre-determined sell at $2.00.

by Ian Harvey

May 14, 2014


Retailer, J. C. Penney Company, Inc. (NYSE: JCP) is slated to report its first-quarter fiscal 2014 results after the market close on May 15, 2014. Analysts expect the company to post a quarterly loss of $1.25 per share. In the last quarter, it posted a positive surprise of 13.9%.

J.C. Penney is down 4.7% on the year, but the stock could charge back into the green on a strong first quarter report.

Factors Influencing the Quarter

J. C. Penney’s has endeavored to recoup and give itself a major facelift which seems to be paying off well as it posted narrower-than-expected loss for the fourth quarter of fiscal 2013. The company has brought back promotions, and is focusing on improving assortments, a better marketing strategy and the JCP Rewards program.

Analysts Opinions

Analysts at Sterne Agee forecast that J.C. Penney Company, Inc. might be able to deliver better-than-expected first quarter results due to improving trends sequentially, along with significantly higher gross profit margin year over year.

The analyst, Charles Grom, forecast that J.C. Penney Company, Inc. will “possibly experience a strong Easter selling season and momentum into Mother’s Day, which could give the bulls something to hang their hats on.”

Grom and his fellow analysts estimated that J.C. Penney Company, Inc. will report a loss of $1.29 per share, compared with a loss of $1.38 per share in the first quarter a year ago. The consensus estimate is $1.25 per share in losses. The analyst projects that J.C. Penney’s gross profit margin will be around 35%. The analyst explained that the estimate reflects improving sales, a much higher private label mix, and lower clearance activity, partially offset by the impact of periods of promotional activity during the quarter.

According to Grom, J.C. Penney Company, Inc. is expected to incur EBITDA losses of $150 million, EBIT losses of $305 million and a net loss of $402 million. They estimated that the company will report a 2% decline in SG&A costs, bringing them to $1.056 billion.

Also, the company has been the subject of a number of research reports:-

• Piper Jaffray analyst Neely Tamminga reiterated her BUY rating and $11 price target on J.C. Penney Company, Inc. before the Q1 report. Neely argued, “In our upgrading J.C. Penney shares earlier this year we held, and continue to hold, a few, but critical, beliefs as to what we see as J.C. Penney’s opportunity to improve their sales and margins, and ultimately, their cash flow over time.” Neely sees potential in the company and is ready to see J.C. Penney bounce back over time. Neely has a +4.2% average return over S&P-500 and a 75% success rate recommending stocks.

Neely’s last J.C. Penney Company, Inc. recommendation from January this year, brought her +13.1% over S&P-500. The stock had just climbed 3.7% and Neely recommended BUY noting that “2014 will be a year of progress for the retailer.” Will Neely’s latest BUY J.C. Penney recommendation prove her right? • Analyst Michael Binetti and his team over at UBS recently upgraded his SELL JC Penney recommendation to a HOLD rating. Michael also sees the makings of a comeback, arguing, “In our view, [J.C. Penney] has less “miss & lower” risk on [same-store sales/gross margins] in 1H14 while lapping significant one-time drags from extremely high clearance levels—and having 19% of total sq. footage under construction—in 1H13. In our view, the stock debate shifts to 2H14, when these one-time tailwinds abate and [J.C. Penney] will once again be tested on whether it can drive significant traffic back to stores as YOY comparisons normalize.” While he sees less risk in the near-term, Michael still sees some risk and only recommends HOLD. Michael has a +1.0% average return over S&P 500 (INDEXSP:.INX) with a 45% success rate of recommendations.


It is no secret that J.C. Penney has been struggling in recent years. The company last reported earnings back in February, and the results were very positive for the company. On the heels of the fourth quarter report, which showed a smaller than expected loss, the stock surged, but has been trading in a fairly tight sideways pattern over the last two months.

Wall Street wants to believe in the company, and if it can once again show better than expected results, there is no reason why the stock will not enjoy another strong move higher.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the JCP Aug 2014 9.000 call (JCP140816C00009000) at or under $1.10, good for the day. Place a protective stop limit at $0.45 and a pre-determined sell at $2.00.

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