yesterday is gone: think of tomorrow

7/27/2019 Yesterday Is Gone: Think of Tomorrow

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Please refer to Page 3 of this document for important disclosures Page 1

May 17, 2013

J.C. Penney BUY

Yesterday Is Gone: Think of Tomorrow

Investment Opinion: J CP is moving from danger to a more secure

foundation to build upon. CEO Ullman has improved finances. Next

should come operating results, and that might not take long. A rally to

$20-$25 seems likely. More might follow.

Eighteen months of mismanagement by Ron J ohnson et al are over. But

the past is not entirely behind us because the Board of Directors,

culpable for this misadventure, is still in place. Men and women worthy of

respect, would come to the annual meeting with resignation in hand,

especially William Ackman who pressured for damaging changes that

undermined the company and investment portfolios.

The carnage under J ohnson was on display again with the report of

1Q/13 operating resultshuge loss and cash burn to the point of

requiring large loans to carry on. The Board permitted J ohnson to plunge

ahead with big capital expenditures to redo home departments, leaving

$325mm of bills to be paid in 2Q/13.

Mike Ullman took responsibility for the company five weeks ago and has

quickly shown that he can stabilize it, bringing in needed cash and

setting a sober course for correction of errors.

Penney is in a deep hole, but in our opinion, it is not a bottomless pit

There is daylight, as evidence by what apparently was a strong positive

response by customers to Penneys marketing on Mothers Day. We

anticipate more news in that vein now that the worst of J ohnsons

decisionsabsence of promotionshas been reversed.

J CPs earnings release cited the thought oflook forward, not back. We

agree entirely. We doubt that another loss of sales and profits as large

as the first quarters will occur in the foreseeable future.

The upside potential for EPS is not determinable yet might surprise

on the upside, along with s tock price appreciation.

SSOOSSNNIICCKKOONNRREETTAAIILLEERRSS

J CP-NYSE $18.3052-Week Range $33.-$14

Market Cap. $4.1bn

Shares Outstdg. 220mn

Book Value/Sh. $13.00

Debt/Total Cap. 60%

Divd. Yield Nil

Avg. Daily Vol. 5.6mm

EPS: P/E

2015E 1.40 13.1x2014E 0.71 25.7x2013E

2012

(1.95)(4.49)

NMNM

2011 0.682010 1.59

Bernard Sosnick

631-964-8716

[email protected]


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Gilford Securities Incorporated J.C. Penn

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For a full text version of this report, which includes the modeland other details of note, please contact the analyst.

RisksPenney faces the macro-economic risks normal to retailers but its greatest risks are internal.

Financial risk will be the primary risk for shareholders, although that should be eased by the receipt of

$1.75bn from a new loan agreement.

We believe CEO Ullmans first actions are encouraging but that does not assure a favorable outcome

for the company.

We believe Penney is better positioned to rebuild sales than seems to be the prevailing opinion, but

our premise remains to be tested.

We cannot reliably estimate earnings at this point or be confident that JCP will become profitable.

We believe changes in the Board of Directors are required, but cannot be certain this will happen.

J CP remains a risky situation. Investors should be able to accept abnormal risk and be willing

speculate that a turn for the better is occurring.


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Gilford Securities Incorporated J.C. Penn

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ANALYST CERTIFICATION

I, Bernard Sosnick, certify that all the views expressed in this research report accurately reflect my personal views of the subject company I also certify that I have not and will not receive compensation with respect to the issuance of this report.REQUIRED DISCLOSURES

In the normal course of business, Gilford Securities seeks to perform investment banking and other services for various companies anreceive compensation in connection with such services. As such, Gilford Securities intends to seek compensation for investment baservices from the subject companies in the next 3 months.

The analysts responsible for preparing research reports are compensated on commissions from non-investment banking activities such as

transactional trading and research fees.

POTENTIAL RISKS

Economic conditions in the US represent the foremost risks to Penneys sales and earnings, in our opinion. The company also faces challefrom formidable competitors that might block the company from achieving its business plan for 2010-2014. Gilford Securities, Incprepared the information and opinions in this report based on our analysis of public information. Gilford Securities, Inc. makes every effouse reliable, comprehensive information, but we make no representation that the information is accurate or complete. Recipients shconsider this report as only a single factor in making an investment decision and should not rely solely on investment recommendacontained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments.

ANALYST STOCK RATINGS

Buy The stock should outperform its industry or peer group by 20% or greater within a 12-18 month time frame.

Sell The stock is expected to under-perform its industry or peer group by 20% or greater within a 12-18 month time frame, or w

fundamentals of a company have deteriorated significantly and the stock is expected to materially depreciate.

NeutralPerformance in-line relative to broad market indexes and/or a representative peer-group return over 12-18 months; a potentialsource of funds.

Distribution of Gilford Ratings (As of 05-09-13)

Category Coverage IB Services*

Buy 58% 5%

Neutral 39% 23%

Sell 3% 0%

* Percentage of companies within this category for whom Gilford has provided

investment banking (IB) Services within the last 12 months.

Date Rating Price

May20,2010 Hold $26.25July21, 2010 Hold $23.63January28,2011 Buy $32.90February14,2011 Buy $36.30February25,2011 Buy $34.61March7,2011 Buy $34.11October7,2011 Buy $28.80November14,2011 Buy $33.00November14,2011 Buy $33.00February1,2012 Buy $41.00March1,2012 Hold $39.00March22,2012 Hold $36.75May8,2012 Hold $ 33.35June19,2012 Hold $21.95July24, 2012 Hold $21.12July30, 2012 Hold $22.00August15,2012 Hold $23.36September 25,2012 Hold $24.82November13,2013 Hold $17.75January29,2013 Hold $20.35February5,2013 Hold $19.90February14,2013 Sell $19.80February28,2013 Sell $21.15March1,2013 Sell $17.57March5,2013 Sell $15.60March7,2013 Sell $14.43March19,2013 Sell $16.44April4,2013 Neutral $ 14.83April9,2013 Neutral $ 14.20April22,2013 Buy $15.25April29,2013 Buy $17.00May1,2013 Buy $16.00May8,2013 Buy $17.70May10,2013 Buy $17.50May17,2013 Buy $18.30

Bernard Sosnick631-964-8716

[email protected]

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST

yesterday is gone: think of tomorrow

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