J.C. Penney Turnaround Still A Ways Off

Shares of J.C. Penney JCP jumped higher after the company reported better-than-expected results on Thursday.

Net sales of $2.80 billion were reported for the quarter, up six percent compared to $2.64 billion in Q1 of 2014. JC Penney also saw an increase of 6.2 percent in same-stores sales. Revenue in the quarter exceeded analysts' estimates of $2.71 billion.

Analysts at UBS, Deutsche Bank, Macquarie and Citigroup gave their opinions of the results.

UBS: Maintains Neutral Rating, Increases Price Target to $10

Analyst Michael Binetti noted that same-store sales coming in better than expected and the improved ’14 outlook have decreased near-term risks for capital raises ahead of the Q3 holiday inventory build-up season, a period identified as the peak cash use period.

“We're now forecasting JCP to burn -$105M in cash (vs -$300M prev) in '14 based on OCF of +$145 and Capex of - $250m,” he wrote.

UBS sees the next stage in the retailer's saga being a significant and profitable increase to SSS in the second half of 2014.

Deutsche Bank: Maintains Hold Rating, Increases Price Target to $10

Paul Trussell  likes the most recent J.C. Penney report and also likes the pressures being relieved through the new $2.35 billion senior secured credit facility in place of its current $1.85 billion facility. More so, the new facility enables Penney to pay off debt while remaining debt neutral on its balance sheet.

DB remains sidelined on the shares due to “…concern that even assuming material improvement ahead we still project earnings declines and EBITDA of just $880M by FY16 (vs. $2.3B in FY07).”

Macquarie: Maintains Neutral Rating, Reiterates Price Target of $10

Liz Dunn of Macquarie is keeping hope alive for Penney with the release of “positive comps, improved gross margin and upsized credit line,” along with the reports of positive traffic in April and the build up of momentum for the company throughout the quarter.

Dunn maintains the Neutral position on the basis that even with a significant recovery in FY14, FY15 and FY16 the valuation currently doesn't justify enough upside.

Citigroup: Maintains Buy Rating, Maintains $11 Price Target

Citi analyst Oliver Chen maintained his rating on J.C. Penney commenting “revised product is resonating with customers as JCP has broadly strong performance in women’s and men’s apparel, home, fine jewelry, women’s apparel, casual and career dressing with St. John’s Bay, Worthington, and Xersion.”

Chen further commented that “JCP expects to continue to sell more merchandise at the promotional price vs. a clearance price. Also, we believe it’s likely that JCP has now edited out unproductive brands and managing clearance in a more effective way will continue to drive upside."

Shares of J.C. Penney opened Friday at $9.86, up over 17 percent since Thursday's close.