Shares in these companies are at bargain prices right now.
After a run of strong sales growth during 2014 and 2015, J.C. Penney (NYSE:JCP) got caught up in the broader department-store slump last year. Comparable-store sales were flat in fiscal 2016. That was far better than the industry average, but it still represented a big step down relative to J.C. Penney’s 4.4% comp sales increase in 2014 and its 4.5% increase in 2015.
Management also has a very cautious outlook for 2017, with guidance calling for another year of flattish comp sales. Investors have punished the stock greatly for this sales slowdown. In fact, J.C. Penney stock hit a new multi-decade low of $5.40 on Thursday.
et from a long-term perspective, J.C. Penney has one big thing going for it: Top rival Sears Holdings (NASDAQ:SHLD) appears to be in a death spiral. J.C. Penney stands to gain a significant amount of incremental business if Sears goes bust. As a result, I more than doubled my stake in J.C. Penney last week.
The slowdown in sales at J.C. Penney is certainly disappointing. But some of this slowdown relates to product missteps that have already been addressed. J.C. Penney is reducing the time to market for its private-brand merchandise, which will help it better react to changing consumer trends going forward.
Furthermore, J.C. Penney continues to improve its profitability year after year by cutting costs. It reached the breakeven mark in fiscal 2016 and expects to earn a modest profit this year, thanks in part to the planned closure of 138 underperforming stores.
In addition, free cash flow has been consistently positive since 2014. In 2017, J.C. Penney expects to produce substantial free cash flow, totaling $300 million to $400 million. Some of that amount will come from asset sales, but the strong cash-flow forecast mainly reflects rising profitability and working capital improvements.
If Sears does go out of business in two or three years, J.C. Penney should be able to capture a meaningful amount of incremental sales. Despite its sharp sales declines of the past few years, Sears (excluding Kmart) still generated $13.5 billion of sales last year, more than J.C. Penney. If J.C. Penney can capture just 10% of that revenue, it would provide a huge earnings boost. (Small changes in sales tend to have a large impact on profitability for department stores.)
J.C. Penney is deliberately positioning itself to capitalize on Sears’ demise. Its most visible initiative along these lines has been the introduction of appliance showrooms in more than half of its store base. J.C. Penney is also testing new “Home Services” offerings to capture a piece of rising consumer spending on home remodeling and repairs.
Kush Bottles (ticker: KSHB) provides packaging products and solutions to producers, processors and retailers operating in the regulated medical and recreational cannabis industry. Founded in 2010, Kush Bottles has sold more than 100 million bottles and regularly services more than 3,000 customers across the United States and Canada. The company primarily services the business-to-business market, which includes legally operated medical and adult-use dispensaries, growers and marijuana-infused product (MIP) manufacturers. Kush Bottles aims to be the gold standard for responsible branding and packaging in the cannabis industry.
The company has been growing steadily, and just released results of another stellar quarter.
Second Quarter Fiscal 2017 Financial Summary
- Revenue was up 65% Year-over-Year
- Gross margins increased 240 basis points Year-over-Year to 35.6%;
- Record cash balance
Working capital up significantly to a record amount – double that of previous year’s.
During the second fiscal quarter the company also continued to build out infrastructure to support long term sustainable growth, including improvements to the supply chain, including increasing production volumes in the U.S. which led to decreased freight costs and improved margins.
The company has a significant cash balance and virtually no debt. In a rapidly growing industry challenged by a lack of access to capital, Kush Bottles is in a prime position to invest in growth both organically or through acquisitions.
Kush Bottles has no direct involvement with cannabis plants or extracts.
The company has been rated OUTPERFORM at Cowen – a respected Wall Street investment bank, that gives the stock a target price of $3.00. Today, KSHB is trading under $3, below that target, and well off its 52-week high of $5.00. KSHB may be a bargain, for a savvy investor.
One company to avoid: Unisys
IT services, virtualization, and outsourcing company Unisys (NYSE:UIS) has shed 14% of its value in April (although at one point it was as much as 21%), after a fourth quarter earnings miss and a $440 million offering of senior secured notes raised questions about its long-term growth. Analysts expect Unisys’ revenue to fall 4% to $2.7 billion this year, compared to a 6% decline in 2015. Its earnings are expected to remain negative for the next two years.
Unisys has been hurt by the same headwinds that have weighed down the entire IT industry over the past few years — sluggish enterprise spending and the rise of nimbler cloud-based rivals. To make matters worse, Unisys relies heavily on H1-B visas, which allow foreign IT professionals to work in the U.S. Critics of H1-B visas — which notably include the Trump Administration — claim that tech companies use H1-B visas to avoid hiring American workers with higher salaries.
First-quarter 2017 financial results showed that operating profit margin were up year over year, and revenue was relatively flat versus the prior-year period.
First-quarter 2017 operating profit margin was just (0.4) percent, which includes cost-reduction and other charges and pension expense.
Net loss attributable to Unisys Corporation common shareholders for the quarter was $(33) million, an improvement relative to $(40) million in the prior-year period.
In the first quarter 2017, operating cash flow decreased by $67 million year over year to $(41) million. At March 31, 2017, the company had $302 million in cash. In April 2017, the company raised $440 million of capital through a high-yield notes offering.
These long-term pressures make it tough to love Unisys.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, investment, legal and other matters referred to on this website are of a general nature only and should not be relied upon in place of appropriate professional advice.
Accuracy & Reliability of Information
Although every effort has been made to verify the accuracy of the information contained in this web site, Business Management News, its officers, employees and agents disclaim all liability for any error, inaccuracy in, or omission from the information contained on this website or any loss or damage suffered by any person directly or indirectly through relying on this information.
Links to Other Sites
Business Management News is not responsible for the content of any site owned by a third party that may be linked to this website, whether such a link is provided by us or by a third party. These links are provided as a courtesy service and no judgement or warranty is made by us concerning the suitability, accuracy or timeliness of the content of any site that may be linked to the Business Management News website. By providing access to other websites, we are not recommending or endorsing any brand, products or services offered by the organization sponsoring or owning the linked website.