Equity Valuation of Jc-Penny

Only available on StudyMode
  • Download(s) : 57
  • Published : March 13, 2011
Open Document
Text Preview
J. C. Penney Company, Inc. Equity Valuation and Analysis As of June 1, 2007

Innovative Analysis Group
Devon Bartholomew Rachael James Daniel Moody Ana Tapia Sherrelle Walker devon.bartholomew@gmail.com rach_jam@yahoo.com dan946@gmail.com ana.tapia@ttu.edu sherrelle_walker@hotmail.com

Table of Contents
Executive Summary Business & Industry Analysis Company Overview Industry Overview Five Forces Model Rivalry Among Exiting Firms Threat of New Entrants Threat of Substitute Products Bargaining Power of Buyers Bargaining Power of Suppliers Value Chain Analysis Firm Competitive Advantage Analysis Accounting Analysis Key Accounting Policies Potential Accounting Flexibility Actual Accounting Strategy Quality of Disclosure Qualitative Analysis of Disclosure Quantitative Analysis of Disclosure Sales Manipulation Diagnostics Expense Manipulation Diagnostic Potential “Red Flags” Coming Undone (Undo Accounting Distortions) Financial Analysis, Forecast Financials, and Cost of Capital Estimation Financial Analysis Liquidity Analysis Profitability Analysis 3 8 8 10 12 12 18 20 22 25 28 34 40 41 47 49 50 51 53 54 62 68 69 71 71 71 79 1

Capital Structure Analysis IGR/SGR Analysis Financial Statement Forecasting Analysis of Valuations Method of Comparables Cost of Equity Cost of Debt Weighted Average Cost of Capital Intrinsic Valuations Discount Dividends Model Free Cash Flows Model Residual Income Model Long Run Return on Equity Residual Income Model Abnormal Earnings Growth Model Credit Analysis Analyst Recommendation Appendix Liquidity Ratios Profitability Ratios Capital Structure Ratios Method of Comparables Regression Analysis Cost of Equity Cost of Debt and WACC Discount Dividends Model Free Cash Flows Model Residual Income Model Abnormal Earnings Growth Model Altman Z-score References

84 88 90 101 101 110 111 112 113 113 115 117 120 122 126 127 129 129 130 131 132 133 143 144 145 146 147 148 149 150 2

Executive Summary
Investment Recommendation: Overvalued, Sell (6/1/2007)
JCP - NYSE(6/1/2007): 52 Week Range: Revenue: Market Capitalization: Shares Outstanding: 3-month avg. Daily Trading Volume: Percent Institutional Ownership: Book Value Per Share: ROE: ROA: Cost of Capital est. Estimated: 3-month 6-month 2-year 5-year 10-year R2 0.1913 0.1911 0.1895 0.1886 0.1183 Beta 1.1306 1.1302 1.1252 1.1215 1.1203 $81.99 $61.20 - $87.18 $19,903 M $18.51 B $226 M 3,824,300 89.70% $18.99 28% 9.30% Ke 8.41% 8.40% 8.40% 8.40% 8.39% Altman's Z-score 2002 2003 2004 2.75 1.91 3.03 Valuation Estimates Actual Price (6/1/2007): 2005 3.43 2006 3.80

$81.99

Financial Based Valuations Trailing P/E: $82.76 Forward P/E: $75.61 P.E.G.: $42.55 P/B: $60.20 P/EBITDA: $21.40 P/FCF: N/A* EV/EBITDA: $72.17 Intrinsic Valuations Discount Dividend: Free Cash Flows: Residual Income: LR ROE: AEG:

Published Beta: 0.58 Kd(AT): 4.04% WACC(BT): 8.72% WACC(AT): *Irrelevant due to negative cash flows

7.28%

$16.06 $36.70 $26.61 $15.33 $22.88

http://moneycentral.msn.com

http://moneycentral.msn.com

3

Industry Analysis In 1902, James Cash Penney opened the first J. C. Penney in the town of Kemmerer, Wyoming under the name the Golden Rule. It has become one of the largest department and discount retail chains in America. Its target market consists of middle-income families who want the convenience of shopping for a variety of goods at affordable prices without sacrificing quality. J. C. Penney operates 1,033 department stores in 49 states and Puerto Rico as of February 3, 2007. It has also expanded to serve its consumer base by offering its products and services via the internet and through distribution of its general merchandise catalog. Direct competitors of J. C. Penney include Kohl’s, Dillard’s, Stage Stores, Inc., and Stein Mart. Existing firms compete for market share based on economies of scale, tight cost controls, and investments in brand image. This competition nearly eliminates any possibility of new entrants entering into...
tracking img