J.C. Penney: Oh The Chaos!

Few retailers have been hit as hard as J.C. Penney (JCP).

The once-powerful company has been turned upside down as customers and investors flee for greener pastures. At least one analyst argues that J.C. Penney does not deserve to be a public company.

What's Not To Like?
That stock is pretty chaotic right now, Walter Gault, Editor and Equity Analyst of Sabrient Systems, told Benzinga. Obviously they've had some internal turmoil with changing out CEOs. One thing we don't like about 'em -- over the last few years, J.C. Penney's capital expenditures have gone up 27.8 percent year-over-year while sales, at the same time, have gone down 24 percent year-over-year. For a retailer, that's not a very good find.

Gault said that he also has some concerns that J.C. Penney might be overstating its pensions. He said that he is not sure what to make of the CEO shakeup, in which the retailer replaced Ron Johnson with its former chief executive, Mike Ullman.

It seems pretty confusing, and I'm sure it's pretty confusing to investors as well, said Gault. They're not in good shape but it's hard to say where they're going to go from here. Like I said, what we're concerned about is that the capital expenditures have gone up year-over-year and the sales have gone down year-over-year.

When asked if J.C. Penney could be saved, Gault paused for a moment before saying, That I don't know.

Ready To Fill The Void
While most investors and analysts seem to be skeptical of the company, there are plenty of other retailers ready to take center stage. One of them is Macy's (M).

I don't see the Martha Stewart line affecting Macy's that much, Gault said of the ongoing controversy between Macy's and Martha Stewart Living Omnimedia (MSO). It's a pretty well-established brand. Its cash flow looks good, its income looks good. Fundamentally (from a quant perspective) it looks good -- it's trading for 13.5 times current earnings, just under nine times forward earnings. The growth rate looks great for the year -- 12.4 percent for 2013 and 13 percent over the next five years.

In addition to Macy's, Gault is also recommending ZAGG (ZAGG).

We did a standard GARP (growth at a reasonable price) search in MyStockFinder, he said. We're looking for a decrease between current P/E ratios to forward P/E ratios. It's showing us it's going to have some growth. We're looking at forward earnings estimates. It was trading on Monday around 16 times current earnings and 5.5 times forward earnings. We like it. It has 22 percent projected five-year growth rate, 43 percent growth rate for 2013 and 31 percent growth rate for the current quarter.

Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at 248-636-1322 or louis@benzingapro.com. Follow him @LouisBedigianBZ.

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