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

More documents

Recommendations

Info

Common Size Balance Sheet 2002 2003 2004 2005 2006 AVGAVG 05-06IndustryAverageAssumedCash & short-term investments 13.85% 16.36% 33.18% 24.20% 21.68% 21.85% 22.94% 10.68% 22.94%Receivables, net 3.95% 1.27% 2.86% 2.17% 2.08% 2.46% 2.12% 4.31% 75.68Merchandise inventories 27.68% 17.25% 22.43% 25.76% 26.83% 23.99% 26.29% 36.03% 3.552Prepaid expenses 1.28% 0.71% 1.18% 1.65% 1.88% 1.34% 1.77%Total current assets 46.75% 35.59% 59.65% 53.78% 52.46% 49.65% 53.12% 52.07% 53.12%Land & buildings 16.45% 15.08% 20.50% 24.44% 26.66% 20.63% 25.55%Furniture & fixtures 22.09% 12.04% 15.18% 16.68% 16.60% 16.52% 16.64%Leasehold improvements 7.10% 3.68% 4.77% 5.79% 6.27% 5.52% 6.03%Accumulated depreciation 18.21% 11.60% 14.70% 16.83% 16.69% 15.60% 16.76%Property & equipment, net 27.43% 19.21% 25.75% 30.08% 32.84% 27.06% 31.46% 42.61% 33.20%Prepaid pension 0.00% 7.21% 10.89% 11.79% 9.75% 7.93% 10.77%Goodwill & other intangible assets, net 15.66% 0.23% 0.00% 0.00% 0.00% 3.18% 0.00%Real estate investments 0.59% 0.92% 1.36% 2.17% 2.76% 1.56% 2.46%Leveraged lease investments 0.73% 0.73% 0.98% 1.08% 1.10% 0.93% 1.09%Capitalized software, net 1.28% 0.53% 0.70% 0.71% 0.75% 0.79% 0.73%Goodwill - Renner 0.00% 0.00% 0.30% 0.00% 0.00% 0.06% 0.00%Deferred catalog book costs 0.41% 0.42% 0.00% 0.00% 0.00% 0.17% 0.00%Debt issuance costs, net 0.26% 0.28% 0.22% 0.19% 0.17% 0.22% 0.18%Prepaid pension 6.56% 0.00% 0.00% 0.00% 0.00% 1.31% 0.00%Other assets 0.33% 0.15% 0.14% 0.19% 0.17% 0.20% 0.18%Total other assets 10.16% 3.04% 3.71% 4.35% 4.96% 5.24% 4.65%Assets of discontinued operations 0.00% 34.72% 0.00% 0.00% 0.00% 6.94% 0.00%Total noncurrent assets 53.25% 64.41% 40.35% 46.22% 47.54% 50.35% 46.88% 47.60%Total assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 1.584Trade payables 15.59% 9.06% 12.94% 13.85% 16.29% 13.55% 15.07% 26.14% 17.20%Accrued salaries, vacation & bonus 4.96% 3.18% 4.78% 5.36% 5.43% 4.74% 5.39%Customer gift cards/certificates 1.50% 1.39% 2.23% 2.59% 2.75% 2.09% 2.67% 5.63% 5%Taxes other than income taxes 0.00% 0.00% 1.35% 0.88% 1.38% 0.72% 1.13%Capital expenditures payable 0.00% 0.00% 0.00% 0.56% 1.05% 0.32% 0.80%Interest payable 1.06% 1.03% 1.15% 1.12% 1.00% 1.07% 1.06%Current portion of retirement plan liabilitie 0.00% 0.00% 0.00% 0.00% 0.88% 0.18% 0.44%Advertising payables 1.63% 0.61% 0.84% 1.17% 1.11% 1.07% 1.14%Current portion of workers' compensation & ge 0.86% 0.49% 0.73% 0.85% 0.80% 0.75% 0.83%Occupancy & rent-related payables 0.79% 0.00% 0.00% 0.60% 0.55% 0.39% 0.58%Common dividends payable 0.30% 0.27% 0.38% 0.34% 0.49% 0.36% 0.42%Reserves for discontinued operations 0.00% 0.00% 2.38% 0.93% 0.41% 0.74% 0.67%Taxes payable 1.07% 0.92% 0.85% 0.00% 0.00% 0.57% 0.00%Pharmacy payables 1.14% 0.00% 0.00% 0.00% 0.00% 0.23% 0.00%Restructuring reserves 0.32% 0.00% 0.00% 0.00% 0.00% 0.06% 0.00%Funds due for common stock repurchases 0.00% 0.00% 0.55% 0.00% 0.00% 0.11% 0.00%Other accrued expenses & other curr liabils 3.76% 2.86% 3.80% 4.07% 4.33% 3.76% 4.20%Total accrued expenses & oth current liabils 0.00% 0.00% 19.05% 18.48% 20.18% 19.23% 19.33% 25.69% 19.50%Accounts payable & accrued expenses 32.97% 19.81% 0.00% 0.00% 0.00% 10.56% 0.00%Current maturities of long term debt 2.39% 1.88% 4.95% 0.25% 5.18% 2.93% 2.71%Income taxes payable 0.00% 0.00% 0.00% 0.09% 0.00% 0.02% 0.05%Short-term debt 0.11% 0.14% 0.24% 0.00% 0.00% 0.10% 0.00%Deferred taxes 0.70% 7.32% 0.00% 0.00% 0.00% 1.60% 0.00%Total current liabilities 36.17% 29.16% 37.18% 32.67% 41.65% 35.37% 37.16% 52.76% 2.100Notes 16.77% 16.82% 20.03% 20.85% 21.03% 19.10% 20.94% 12.16% 20.00%Debentures 13.26% 11.84% 16.45% 16.19% 16.33% 14.82% 16.26%Notes & debentures 30.03% 28.66% 36.48% 37.05% 37.35% 33.91% 37.20% 23.61%Medium-term notes 4.29% 3.83% 5.32% 3.55% 3.58% 4.11% 3.56%Convertible subordinated notes 5.65% 5.05% 0.00% 0.00% 0.00% 2.14% 0.00%Sunking fund debentures 3.41% 2.43% 0.00% 0.00% 0.00% 1.17% 0.00%Original issue discount debentures 1.36% 1.30% 0.00% 0.00% 0.00% 0.53% 0.00%Equipment financing notes 0.22% 0.16% 0.16% 0.12% 0.05% 0.14% 0.08%Total notes & debentures 0.00% 0.00% 41.96% 40.71% 40.98% 24.73% 40.85%Capital lease obligs & other long-term debt 0.40% 0.17% 0.36% 0.27% 0.10% 0.26% 0.18%Total long-term debt, including current matur 0.00% 0.00% 42.31% 40.99% 41.07% 24.87% 41.03%Less: current maturities 2.39% 1.88% 4.95% 0.25% 5.18% 2.93% 2.71%Long-term debt 42.97% 39.72% 37.36% 40.74% 35.90% 39.34% 38.32%Deferred taxes 12.10% 9.45% 14.22% 15.22% 14.38% 13.07% 14.80%Retirement benefit plan liabilities 0.00% 0.00% 6.84% 6.98% 3.86% 3.54% 5.42%Long-term portion of workers' compensation & 0.00% 0.00% 1.69% 1.94% 1.81% 1.09% 1.88%Developer/tenant allowances 0.00% 0.00% 1.20% 1.44% 1.43% 0.81% 1.44%Reserves for discontinued operations 0.00% 0.00% 1.23% 0.64% 0.61% 0.50% 0.62%Other liabilities 0.00% 0.00% 0.28% 0.37% 0.36% 0.20% 0.36%Total other liabilities 0.00% 0.00% 11.24% 11.37% 8.07% 6.14% 9.72%Liabilities of discontinued operations 0.00% 15.43% 0.00% 0.00% 0.00% 3.09% 0.00%Total NonCurrent Liabilities 63.83% 70.84% 62.82% 67.33% 58.35% 64.63% 62.84% 46.85%Total liabilities 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Preferred stock 5.23% 5.60% 0.00% 0.00% 0.00% 2.17% 0.00%Common stock & additional paid-in capital 53.74% 65.09% 86.00% 86.82% 82.60% 74.85% 84.71%Deferred stock compensation 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Reinvested earnings 44.22% 31.85% 16.72% 12.78% 21.50% 25.42% 17.14% 63.96% 25%Foreign currency translation -2.57% -2.12% -2.14% 0.00% 0.00% -1.37% 0.00%Non-qualified plan minimum liability adjustme -0.91% -1.51% -2.10% -2.55% 0.00% -1.41% -1.27%Net unrealized gains on investments 0.30% 1.11% 1.52% 2.94% 3.87% 1.95% 3.41%Net actuarial gain/(loss) & prior service (co 0.00% 0.00% 0.00% 0.00% -7.98% -1.60% -3.99%Other comprehensive (loss) from discont opers 0.00% -0.02% 0.00% 0.00% 0.00% 0.00% 0.00%Accumulated other comprehensive income (loss) -3.19% -2.54% -2.72% 0.40% -4.10% -2.43% -1.85%Total stockholders' equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%97
Statement of Cash Flow AnalysisWe began the forecasting process by common sizing the cash flowstatement to see if there were any patterns. We noticed net income had aconsistent trend unlike the rest of the numbers within the statement. Weproceeded by manipulating the following ratios: CFFO/NI, CFFO/OI, CFFO/Sales,and CFFO/Gross Profit. After looking to find patterns in the numbers, we optedto forecast using the CFFO/NI and CFFO/Sales. We forecasted CFFO by usingthe previously forecasted sales numbers from the income statement. Then wecontinued by using the forecasted cash flows to calculate net income with theCFFO/NI ratio. After looking at the forecasted net income and operating cashflows, we recognized a trend between the previous cash flow statements. Thisperceived trend proved good logic in our justification. We forecasted the CFFIactivities using our estimates of changes in PP&E. This proved to be a moreeffective measure of the growth of Total Assets because the Balance Sheetestimate contained misleading items like Capitalized Software and a poorlydefined Other Assets section.98
Page 1 and 2:
J. C. Penney Company, Inc. Equity V
Page 5 and 6:
Industry AnalysisIn 1902, James Cas
Page 7 and 8:
Financial Analysis, Forecast Financ
Page 9 and 10:
Business & Industry AnalysisCompany
Page 11 and 12:
Industry OverviewThe retail industr
Page 13 and 14:
Five Forces ModelThe Five Forces Mo
Page 15 and 16:
ConcentrationThe level of concentra
Page 17 and 18:
capable of offering lower prices th
Page 19 and 20:
If a firm wishes to shut down, it m
Page 21 and 22:
Legal BarriersMany industries have
Page 24 and 25:
These costs include issues such as
Page 26 and 27:
Bargaining Power of SuppliersThe de
Page 28 and 29:
The relative bargaining power of th
Page 30 and 31:
Competitive StrategiesIn order to a
Page 32 and 33:
Department stores have to focus on
Page 34 and 35:
The Big PicturePlayers in this indu
Page 36 and 37:
Lower Input CostsJ. C. Penney is at
Page 38 and 39:
in the last five years. This trend
Page 40 and 41:
convenient for different consumers
Page 42 and 43:
transactions have been improperly s
Page 44 and 45:
Penney does state in its annual rep
Page 46 and 47:
Operating and Capital LeasesOperati
Page 48 and 49: Potential Accounting FlexibilityA f
Page 50 and 51: truly are. J. C. Penney, however, h
Page 52 and 53: Qualitative Analysis of DisclosureT
Page 54 and 55: we can see why targeting the strong
Page 56 and 57: manipulation diagnostics for J. C.
Page 58 and 59: Net Sales/Net Accounts ReceivableNe
Page 60 and 61: Net Sales/Unearned Revenue1200Net S
Page 62 and 63: Below is a chart of sales manipulat
Page 64 and 65: As for the industry, all the compan
Page 66 and 67: Pension Expense/SG&APension Expense
Page 68 and 69: Below is a chart of all expense man
Page 70 and 71: discount rates in respect to pensio
Page 72 and 73: Financial Analysis, Forecast Financ
Page 74 and 75: paying off their short-term obligat
Page 76 and 77: ecause many firms in this segment o
Page 78 and 79: Penney’s inventory turnover is in
Page 80 and 81: ConclusionAnalysis through liquidit
Page 82 and 83: operating efficiency because the fi
Page 84 and 85: Return on AssetsReturn on Assets0.1
Page 86 and 87: Capital Structure AnalysisWhen look
Page 88 and 89: however, in 2006, J. C. Penney show
Page 90 and 91: Sustainable Growth RateSustainable
Page 92 and 93: average of only years 2005 and 2006
Page 94 and 95: (reported in millions)Annual Income
Page 96 and 97: We then began to look at the equity
Page 100 and 101: (numbers in millions)Statement of C
Page 102 and 103: ConclusionOverall, it appears that
Page 104 and 105: Inc. We set these averages equal to
Page 106 and 107: Price to BookPPS BPS P/B IndustryAv
Page 108 and 109: Price Earnings GrowthPPS EPS PEG In
Page 110 and 111: y J. C. Penney’s EBITDA. Then we
Page 112 and 113: Regression Analysis3 Month Rate 72
Page 114 and 115: Intrinsic ValuationsIntrinsic valua
Page 116 and 117: amount in the eye’s of shareholde
Page 118 and 119: This particular stock price in our
Page 120 and 121: esidual income or converge. Future
Page 122 and 123: To find our long run return on equi
Page 124 and 125: Sensitivity AnalysisGrowth Rates0 -
Page 126 and 127: for this large difference between s
Page 128 and 129: Analyst RecommendationAfter careful
Page 130 and 131: AppendixLiquidity RatiosCurrent rat
Page 132 and 133: Capital Structure RatioDebt to equi
Page 134 and 135: SUMMARY OUTPUT3 Month Regression72
Page 136 and 137: SUMMARY OUTPUT6 Month Regression72
Page 138 and 139: SUMMARY OUTPUT2 Year Regression72 M
Page 140 and 141: SUMMARY OUTPUT5 Year Regression72 M
Page 142 and 143: SUMMARY OUTPUT10 Year Regression72
Page 144 and 145: Cost of Equity 0.1361Estimated Pric
Page 146 and 147: Discount Dividends Model0 1 2 3 4 5
Page 148 and 149:
Residual Income Model WACC(AT) 0.07
Page 150 and 151:
Z-Score AnalysisZ-Score=1.21.43.320
show all

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

Create successful ePaper yourself

Delete template?

Save as template?