Pre-Earnings Skepticism Builds on J C Penney Company Inc (JCP)

J C Penney Company Inc will report earnings after Wednesday's close

by Karee Venema

Published on Nov 10, 2014 at 10:11 AM
Updated on Apr 20, 2015 at 5:32 PM

Similar to sector peers Abercrombie & Fitch Co (NYSE:ANF) and American Eagle Outfitters (NYSE:AEO), J C Penney Company Inc (NYSE:JCP) was targeted by option bears last week. Specifically, puts traded at a 17% mark-up to the average daily pace on Friday, with the December 7 strike emerging as JCP's most sought-after option of the session.

Drilling down, 14,627 contracts changed hands at this out-of-the-money put -- mostly at the ask price, hinting at buyer-driven activity. Implied volatility jumped 4 percentage points, and the vast majority of volume translated into open interest over the weekend, making it safe to assume a fresh batch of bearish bets was initiated. Delta on the put closed at negative 0.27, but has since dropped to negative 0.37, meaning there is a 37% chance the option will be in the money when the contracts expire at the close on Friday, Dec. 19 -- a time frame which includes the company's next turn in the earnings confessional.

On the charts, JCP is down 19% year-to-date to churn near $7.40, and today, has shed 5.4% in the wake of a price-target cut to $9 from $10 at Baird, which underscored its tepid "neutral" rating. Adding to the bearish bias is a weekend note in Barron's, which said a sales-growth miss could potentially cause a 35% plunge in the shares. This downbeat forecast follows JCP's lowered third-quarter same-store sales outlook at its Oct. 8 analyst day.

However, if history is any guide, the equity's technical troubles could find a brief reprieve after J C Penney Company Inc (NYSE:JCP) unveils its quarterly earnings report Wednesday evening. Over the past four quarters, the stock has averaged a single-session post-earnings gain of 11.9%, which includes a 25.3% pop in February, and a 16.2% jump in May. For JCP's third quarter, Wall Street is calling for a per-share loss of 79 cents.


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