What do you guys think of JCP after all?

Quote from m22au:

It all really depends on your timeframe. I'm sure it can rally from $9.65 back to $11.90 (where it closed 3 days ago) and that would be a nice 20%-plus gain for the trade. However I think it's increasingly unlikely that the company survives.

The $932 million capital raise (assuming 96.6 million shares sold) just buys the company another 6-12 months of time.

Also it's important to note that the additional 84 million (or even as high as 96.6 million shares) will serve to cap any rally.

220.4 million (existing) + 84 million (new) = 304.4 million shares.

304.4 million * 9.65 = $2.937 billion market cap.
220.4 million * $13.33 = $2.937 billion market cap.

Using the new share count, a share price of $9.65 gives the same market cap as the company at $13.33 using the old share count.
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As far as company survival is concerned this offering will help a lot, my main concern was if management raised debt not equity, that would guarantee zombie status and create a vendor induced meltdown next year. With this equity they can fund the new CEO plan and see if sales bounce back hard. Whether its does or not it its a tough call but I do know that
-Its a crowded short right now
-They are raising a lot of money
-The stock declined a ton in one week
-It will take time to see if the new plan is or its not working
-The stock traded more than its entire float two days in a row (huge panic)
-The offering price usually acts as a magnet and could provide support

I would wait for a better situation to play the short side. The long side though, is interesting here. Problem is the stock is so volatile that if it bottoms it will be up $1 in a flash so by the time you can get in the risk reward is worse. I'm hoping for a slow and steady bottom as the stock usually does after earnings sell-offs but I doubt I will get it
 
Quote from Daal:

As far as company survival is concerned this offering will help a lot, my main concern was if management raised debt not equity, that would guarantee zombie status and create a vendor induced meltdown next year. With this equity they can fund the new CEO plan and see if sales bounce back hard. Whether its does or not it its a tough call but I do know that

-Its a crowded short right now
-They are raising a lot of money
-The stock declined a ton in one week
-It will take time to see if the new plan is or its not working
-The stock traded more than its entire float two days in a row (huge panic)
-The offering price usually acts as a magnet and could provide support

I would wait for a better situation to play the short side. The long side though, is interesting here. Problem is the stock is so volatile that if it bottoms it will be up $1 in a flash so by the time you can get in the risk reward is worse. I'm hoping for a slow and steady bottom as the stock usually does after earnings sell-offs but I doubt I will get it
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Thanks for your thoughts Daal.

I would feel comfortable shorting at $9.65 this morning due to the heavy dilution.

However as you point out, the combination of the heavy stock price decline, together with the capital raising delaying bankruptcy concerns for now, means that it's likely that I can be patient and wait for a higher price before shorting.

Regarding today's action: I am guessing a "narrow" range of less than $1 but higher volume than yesterday.
 
Gotta be careful with betting on bk because if sales bounce back the stock price rallies and that gives the chance to the company to raise equity AGAIN. I made a similar mistake in 2009 when I bet that a lot of companies that had a ton of debt would go under, when the green shoot rally started, stock prices went ballistic so did the debt markets. It might have been irrational for the rally to start but the fact that is happened allowed banks and other companies to raise equity and debt and survive. It became a self-fulfilling prophecy

JCP could be a good short in a big spike but right now I think its bad short except for a daytrade
 
Quote from Daal:

Gotta be careful with betting on bk because if sales bounce back the stock price rallies and that gives the chance to the company to raise equity AGAIN. I made a similar mistake in 2009 when I bet that a lot of companies that had a ton of debt would go under, when the green shoot rally started, stock prices went ballistic so did the debt markets. It might have been irrational for the rally to start but the fact that is happened allowed banks and other companies to raise equity and debt and survive. It became a self-fulfilling prophecy

JCP could be a good short in a big spike but right now I think its bad short except for a daytrade
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JCP doesn't have any debt due until 2018.

In 2009, there were lots of companies that were debt laden who didn't have debt due for 3-4 years. As long as they had cashflow to run working capital and pay the interest they would be fine (at least until the debt came due). I was buying those stocks then and did pretty well.

I was long JCP under a similar thesis but I think I am wrong this time. If they are raising capital then they must be expecting working capital issues. That's bad.

I agree with Daal. Being short is crazy. But I think long is a bad position as well.
 
Thanks again for your thoughts Daal and newwurldmn.

It's important to reiterate my earlier point about timeframe:

if I am confident that JCP will not survive, then it's fine to short now, so long as I am willing to withstand a 20%-plus rally from here.

However I agree that it's likely there will be a better entry point in the future, and a chance (albeit small) that its profitability and cash flow will improve substantially in coming months.

Regarding some of your specific points newwurldmn:

JCP has $200 million due in 2015, and other debt due in 2016 and 2017:
http://www.scribd.com/doc/170903704/JCP-GS
(refer to exhibit 18)

JCP does not have (operating) cashflow to fund its operations. The capital raising just buys them time before another debt raising or capital raising (or bankruptcy filing) is required.
 
Yeah they have to get sales up a lot to beat the negative cash burn but I don't like to argue with irrational runups anymore, I just try to get out of the way and even profit from it
 
Quote from Daal:

Gotta be careful with betting on bk because if sales bounce back the stock price rallies and that gives the chance to the company to raise equity AGAIN. I made a similar mistake in 2009 when I bet that a lot of companies that had a ton of debt would go under, when the green shoot rally started, stock prices went ballistic so did the debt markets. It might have been irrational for the rally to start but the fact that is happened allowed banks and other companies to raise equity and debt and survive. It became a self-fulfilling prophecy

JCP could be a good short in a big spike but right now I think its bad short except for a daytrade
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right now with the bullshit announcement you can see the house of smoke and mirrors is unraveling...I'd wait for a deep discount from here and go long. Although last time I tried this is was fri and I purchased leh to have it open up as a penny stock some time later...;o)
 
Quote from ElCubano:
right now with the bullshit announcement you can see the house of smoke and mirrors is unraveling...I'd wait for a deep discount from here and go long. Although last time I tried this is was fri and I purchased leh to have it open up as a penny stock some time later...;o)
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:eek:
 
Quote from Daal:

does anyone know if the JCP offering size was added to the volume today? in the ackman sale I know it was
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"The offering is expected to close on October 1, 2013, subject to certain customary conditions."

So I would say the answer to your question is no.
 
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