J.C. Penney Co. (JCP:US), its shares already under pressure as sales slump, has been forced to fend off Twitter posts citing unsubstantiated information about its operations.
On Oct. 15, Bryan Mortenson, an investment adviser, took to Twitter citing “unsubstantiated” rumors J.C. Penney hired a bankruptcy attorney. Three days later, an entity called @CalConfidence said the company lost access to Canadian credit. Benzinga, an investment website, cited the posts, and the stock fell 8.9 percent on Oct. 15 and 4.8 percent on Oct. 18.
The posts, which J.C. Penney denied, are a reminder of social media’s power to undermine the reputation and shares of a public company. J.C. Penney, struggling to turn itself around after the failed strategy of former Chief Executive Officer Ron Johnson, is especially vulnerable to market sentiment.
“J.C. Penney’s is a very specific situation,” said Liz Dunn, an analyst at Macquarie Group in New York. “I wouldn’t expect this to be a rampant problem of anonymous Twitter users bashing companies.”
She rates the shares neutral, the equivalent of a hold.
J.C. Penney put out a statement Oct. 15 denying the hiring of a bankruptcy lawyer. Three days later, it posted on Twitter a denial of the Canadian credit report. The company decides whether to respond to rumors on a case-by-case basis, Kristin Hays, a J.C. Penney spokeswoman, said in a telephone interview.
“It’s certainly gotten to the point where the market manipulation has become so prevalent that we felt it was appropriate to speak out on Friday,” she said. “We took to social media to fight back in their space.”
CEO Mike Ullman has aggressively shored up J.C. Penney’s finances. Early on, he drew $850 million from a revolving credit line, then arranged a loan commitment from Goldman Sachs Group Inc. that provided the company with $2.25 billion in cash. Last month, he sold 84 million shares, generating about $785 million after fees. The share offering came about a month after J.C. Penney said its forecast for year-end liquidity didn’t assume the need to raise more cash this year.
The company has said it will end the year with more than $2 billion in liquidity.
In a note yesterday, Mary Ross-Gilbert, an analyst at Imperial Capital LLC in Los Angeles, cut the company’s price target to $1 from $5, saying that while she believes the reports “may be inaccurate or potentially misleading,” they appear to be “wearing down vendors and management.”
J.C. Penney’s management isn’t used to operating in a distressed environment, Ross-Gilbert said yesterday in a telephone interview.
“We’re concerned that everything else that’s going on turns out to be bigger than what they can control,” she said.
In her note, Ross-Gilbert cited concern the department-store chain may require a financial restructuring next year. She has an underperform rating on the shares, the equivalent of a sell. Ross-Gilbert also cut her rating (JCP:US) on the company’s bonds maturing by 2018 to sell from hold.
“When combined with the reported improvements in our business trends, the need for ‘financial restructuring’ is purely speculative and not grounded in fact,” Hays said.
J.C. Penney, based in Plano, Texas, gained 2 percent to $6.55 at the close in New York. The shares have plunged 67 percent this year, compared with a 23 percent advance for the Standard & Poor’s 500 Index.
In a telephone interview, Mortenson, a 31-year-old equity analyst and portfolio manager for investment advisor R.H. Bluestein & Co. in Birmingham, Michigan, said he got the information from a trader at his firm.
“If it’s something that hasn’t been verified, I’ll denote it as such,” said Mortenson, who adds he doesn’t own J.C. Penney shares or manage the company’s stock in his portfolio. “In this case, ‘unsubstantiated, vague,’ means to me this isn’t factual. I think that’s fair from my standpoint.”
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