J. C. Penney Company, Inc. Equity Valuation and Analysis As of ...

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Table of ContentsExecutive Summary 3Business & Industry Analysis 8Company Overview 8Industry Overview 10Five Forces Model 12Rivalry Among Exiting Firms 12Threat of New Entrants 18Threat of Substitute Products 20Bargaining Power of Buyers 22Bargaining Power of Suppliers 25Value Chain Analysis 28Firm Competitive Advantage Analysis 34Accounting Analysis 40Key Accounting Policies 41Potential Accounting Flexibility 47Actual Accounting Strategy 49Quality of Disclosure 50Qualitative Analysis of Disclosure 51Quantitative Analysis of Disclosure 53Sales Manipulation Diagnostics 54Expense Manipulation Diagnostic 62Potential “Red Flags” 68Coming Undone (Undo Accounting Distortions) 69Financial Analysis, Forecast Financials, and Cost of Capital Estimation 71Financial Analysis 71Liquidity Analysis 71Profitability Analysis 791
Page 1: J. C. Penney Company, Inc. Equity V
Page 6 and 7: Accounting AnalysisProfitability re
Page 8 and 9: ValuationsAfter an analyst finishes
Page 10 and 11: of J. C. Penney’s direct competit
Page 12 and 13: Kohl’s, and Dillard’s. The fina
Page 14 and 15: high concentration, vast economies
Page 16 and 17: Differentiation and Switching Costs
Page 18 and 19: the number of dollars of fixed asse
Page 20 and 21: typically lack customer base and br
Page 22: cost of buyers can be perceived as
Page 25 and 26: across the board, the power to choo
Page 27 and 28: switching cost for a company to cha
Page 29 and 30: Value Chain AnalysisThe Overall Cla
Page 31 and 32: Lower Input CostsIn order to mainta
Page 33 and 34: Investment in Brand ImageNot only d
Page 35 and 36: Firm Competitive Advantage Analysis
Page 37 and 38: Tight Cost Control SystemJ. C. Penn
Page 39 and 40: the J. C. Penney customer” (J. C.
Page 41 and 42: Accounting AnalysisFinancial statem
Page 43 and 44: their numbers to be more appealing
Page 45 and 46: Pension Discount Rates2002 2003 200
Page 47 and 48: companies have erroneously capitali
Page 49 and 50: acquires certain benefits associate
Page 51 and 52: 2006, they made several changes to
Page 53 and 54:
acking into them through crunching
Page 55 and 56:
Quantitative Analysis of Disclosure
Page 57 and 58:
company still using a private label
Page 59 and 60:
accounts receivable to zero resulti
Page 61 and 62:
Net Sales/Warranty LiabilitiesNone
Page 63 and 64:
Expense Manipulation DiagnosticsExa
Page 65 and 66:
Cash Flows From Operating Activitie
Page 67 and 68:
Other Employment Expenses/SG&AOther
Page 69 and 70:
ConclusionSome firms within the dep
Page 71 and 72:
concluded that there are no account
Page 73 and 74:
Current RatioCurrent Ratio4.03.53.0
Page 75 and 76:
where the largest portion of a comp
Page 77 and 78:
a MasterCard or VISA, allowing J. C
Page 79 and 80:
Working Capital TurnoverWorking Cap
Page 81 and 82:
Gross profit margin is a ratio betw
Page 83 and 84:
illion from the discontinued operat
Page 85 and 86:
Return on EquityReturn on Equity0.3
Page 87 and 88:
equity. As we follow the trend thro
Page 89 and 90:
industry. Unfavorable numbers prese
Page 91 and 92:
more profitable in the future. Sinc
Page 93 and 94:
our predicted future values show op
Page 95 and 96:
Balance Sheet AnalysisWhen determin
Page 97 and 98:
(reported in millions)Balance Sheet
Page 99 and 100:
Statement of Cash Flow AnalysisWe b
Page 101 and 102:
Common Size Cash Flow Statement 200
Page 103 and 104:
Analysis of ValuationsThere are sev
Page 105 and 106:
Trailing Price to EarningsPPS EPS P
Page 107 and 108:
Dividend YieldPPS DPS D/P IndustryA
Page 109 and 110:
and EBITDA reported on J. C. Penney
Page 111 and 112:
Cost of EquityThe cost of equity, K
Page 113 and 114:
provided in the 10-K and applied th
Page 115 and 116:
Sensitivity AnalysisGrowth Rates0.1
Page 117 and 118:
Sensitivity AnalysisGrowth Rates0.0
Page 119 and 120:
To reach the values used in the sen
Page 121 and 122:
Long Run Return on Equity Residual
Page 123 and 124:
Once we found both long-run return
Page 125 and 126:
This value of the perpetuity then n
Page 127 and 128:
Credit AnalysisWe evaluated J. C. P
Page 129 and 130:
the discount dividend model irrelev
Page 131 and 132:
Profitability RatiosGross profit ma
Page 133 and 134:
Method of ComparablesPPS EPS foreca
Page 135 and 136:
SUMMARY OUTPUT3 Month Regression24
Page 137 and 138:
SUMMARY OUTPUT6 Month Regression24
Page 139 and 140:
SUMMARY OUTPUT2 Year Regression24 M
Page 141 and 142:
SUMMARY OUTPUT5 Year Regression24 M
Page 143 and 144:
SUMMARY OUTPUT10 Year Regression24
Page 145 and 146:
Weighted Average Cost of Debt and W
Page 147 and 148:
Free Cash Flow Model WACC(AT) 0.072
Page 149 and 150:
AEG ModelWACC(AT) 0.0728 Kd 0.0332
Page 151:
References1. Dillard’s Website: w
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