JCP Vs. M: Which Stock Is The Better Value Option?

J.C. Penney (NYSE:JCP) and Macy’s (NYSE:M) have been at the forefront of the retail industry for years. But which company is the better bet for value investors? Let’s take a closer look.

In terms of scaling and niches, J.C.Penney has about 200 more locations in the U.S. and Puerto Rico and digs more extensively into pharmaceuticals, ecommerce, and catalogs than Macy’s, but both are essentially leading the industry in revenue and size.

Investors interested in the retail industry will be happy to hear that both of these companies hold “A” grades in Value based in our Style Scores system and are currently being traded at a discount to the broader market.

Macy’s low PE value of 8.5 is the go-to indicator of value, where most value investors look for PE ratios below 20. The company’s cash flow of $6.90 per share and P/CF of 4.5 also compare favorably to their industry averages of $2.83 per share and 5.1. This shows that Macy’s stock is being traded at a discount relative to the industry, while bringing in more than twice the cash per share.

In similar fashion, J.C.Penney promises good value with its low P/S ratio of 0.1—one-fourth of the retail industry average. J.C.Penney’s P/B ratio of 0.7 more than halves the industry’s 1.7 and shows that J.C.Penney’s stock is being traded at just 70% its book value.

With both stocks seemingly offering amazing value, how should investors go about determining which to invest in? The best way to differentiate between stocks with great Style Scores is to look at their Zacks Rank.

Macy’s sports a Zacks Rank #1 (Strong Buy) while J.C.Penney sports a Zacks Rank #3 (Hold). The Zacks Rank is based on earnings estimate revisions, and with three weeks before retail earning reports, we can dig into recent revisions for the current quarter to better understand why each company has received their respective rank.

Macy’s has received 100% agreement to the upside with its estimate revisions, while J.C.Penney has received a 50-50 split in the same metric. Analysts feel very confidently that Macy’s earnings outlook is improving, but are shaky in regards to J.C.Penney.

Macy’s growth prospects also edge out J.C.Penney, and because their business are similar, this should carry some weight. Macy’s is projected to improve earnings and revenue this quarter, while JCP is expected to witness declines on the top and bottom line. This is reflected in Macy’s “A” grade and J.C.Penney’s “B” grade in Growth in our Style Scores system.

Bottom Line

J.C.Penney and Macy’s are both leading retail companies with strong value in today’s market. Although this is the case, strong analyst confidence in Macy’s, as well as strong growth prospects, give the company the edge over J.C.Penney as the better value option today.

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