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Brand Face-Off: J.C. Penney Company, Inc. vs. Macy's, Inc.

Evaluating JCP and M from technical and sentiment viewpoints

by 12/9/2013 12:39:19 PM
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J.C. Penney Company, Inc. (NYSE:JCP) and Macy's, Inc. (NYSE:M) are two of the most venerable department store names in the U.S. Both have been around for more than 100 years, with plenty of successes along the way. Recently, however, their paths have diverged.

On the charts, JCP has shed roughly 57% year-to-date, guided south by its 40-week moving average. On a relative-strength basis, the stock has underperformed the broader S&P 500 Index (SPX) by 45.3 percentage points during the last three months. By contrast, M has tacked on 34% in 2013 -- and recently hit a record high of $54.07 -- while being ushered north atop its 20-month moving average. Additionally, the shares have outperformed the SPX by more than 8 percentage points in the most recent 60 trading days.

Weekly Chart of JCP since April 2012 With 40-Week Moving Average

Monthly Chart of M since October 2009 With 20-Month Moving Average

Things get even more interesting when we turn to sentiment. At first blush, it appears that JCP is a favorite among option bulls at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where its 50-day call/put volume ratio of 1.45 sits just 5 percentage points from an annual acme. In other words, traders have scooped up long JCP calls over puts at a near-extreme pace in recent months.

However, some of the call buying may be attributable to high levels of short interest on J.C. Penney -- understandable, given its technical woes. Specifically, a jaw-dropping 40.7% of its shares are currently sold short. To put matters simply, the shorts may have purchased the aforementioned calls as hedges to protect their bearish stock positions against an unexpected rally in the shares.

Turning to Macy's ... this retailer, too, is a popular target among call buyers at the ISE, CBOE, and PHLX. Coincidentally, the equity's 50-day call/put volume ratio of 2.82 also sits in the 95th percentile of its annual range. However, with just 2.4% of M shares sold short, the long call positions being initiated are likely genuine bullish bets.

Elsewhere, JCP is not well liked on Wall Street. Just two analysts rate the security a "strong buy," compared to 12 tepid "holds" and four "strong sell" recommendations. Meanwhile, the shares' consensus 12-month price target stands at $9.68 -- 13.5% higher than the current price of $8.53. This means a round of downward price-target revisions may be on the horizon, which could pressure the stock lower.

Opinions are more divided on M. The equity features seven ratings of "buy" or better, versus eight "holds." What's more, the retailer's consensus price target of $54.44 is just 4.1% higher than the current price of $52.28. Given M's recent history on the charts, a round of analyst upgrades and/or price-target hikes could come down the pike, lifting the shares even higher.

Having surveyed both J.C. Penney Company, Inc. (NYSE:JCP) and Macy's, Inc. (NYSE:M) from technical and sentiment viewpoints, we can now declare a winner. Simply put, due to its price performance and the prospects of forthcoming bullish brokerage notes, M gets the nod in this battle of the brands.

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