Please ensure Javascript is enabled for purposes of website accessibility

Why J.C. Penney Stock Was Skyrocketing Today

By Jeremy Bowman – May 15, 2020 at 10:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The department store chain avoided bankruptcy...for now.

What happened

Shares of J.C. Penney (JCPN.Q), the ailing department store chain, soared today after the company surprised investors by making a $17 million interest payment that was due today. Reports had been circulating that the company was planning to file for bankruptcy, but the interest payment means that it will live to see another day.

The stock, which had been halted at the market open, jumped as much as 59% Friday morning, and was trading up 38% as of 10:49 a.m. EDT.

The exterior of a J.C. Penney department store

Image source: J.C. Penney.

So what

In a regulatory filing, Penney said it made the payment on Thursday that was due on May 7, taking advantage of a five-business-day grace period. The company said it used the grace period to evaluate strategic alternatives, though it hasn't selected one at this time. It said it is still considering options.

A bankruptcy filing still seems imminent for the chain, which had been struggling for years before the pandemic forced mass store closures.

According to news reports, the company is in negotiations for $450 million in debtor-in-possession financing that would allow it to continue operating stores while it's in bankruptcy and restructuring. Making the payment may help the retailer improve its negotiating position for an impending bankruptcy, giving the business a greater chance of survival over the long term. It also has a $12 million payment due today after a 30-day grace period is expiring, and it's unclear if it will make that payment.

Now what

According to CNBC, Penney has been working on a bankruptcy plan that would close 180 to 200 of its approximately 850 stores. Given the circumstances around the COVID-19 pandemic, the company has few other options. A bankruptcy would almost certainly wipe out common shareholders, who are last in line in claims on the company's assets. But the stock will continue to be volatile ahead of the filing as traders look to make a quick score. Today's trading volume was several times higher than the normal level.

Penney's first-quarter earnings report is expected later this month, though the company has yet to schedule a date.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.