4 companies trying to turn things around

When something goes wrong, it's tempting to think it can only get better. That's often the case for large companies, where investors may see a dinged-up stock as an opportunity to jump in for cheap.

But that idiom doesn't always play out. Sometimes bad situations just get worse. That's why large-capitalization "values" can be tricky for investors – the company's price looks attractive, but company-specific or industry-wide issues could keep the stock from ever bouncing back.

[See: 7 of the Best Stocks to Buy in 2017.]

Below are four large companies at such a crossroads. Analysts are trying to decide whether their fates will improve, but in some cases, it looks like bleaker days ahead.

Macy's remains stuck between Amazon and thrift. Macy's (ticker: M) started 2017 by announcing it would cut more than 10,000 employees – 3,900 cuts from store closures, and 6,200 cuts as a result of a corporate restructuring. Macy's also reported some coal in its stocking – a 2.1 percent decline in comparable-store sales for November and December.

The pain isn't new for Macy's, whose stock price has dropped nearly 60 percent since July 2015. The reason: off-price retailers such as TJX Companies (TJX) brands T.J.Maxx and Marshalls, and the growing clout of online retailers such as Amazon.com (AMZN).


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Retailers like T.J.Maxx and Marshalls sell similar products as Macy's, but undercut Macy's on price. Morningstar analyst Bridget Weishaar says Macy's is trying to match TJX by expanding its own off-price retail store, Backstage, which launched in fall 2015. The outlet offers clearance items from Macy's stores, but remains a small part of overall sales.

[See: 8 Gold ETFs to Buy Anytime.]

It's a similar story as it tries to fight e-commerce operators like Amazon. While Macy's has taken steps to improve its online efforts, such as offering in-store pickup of online purchases, it hasn't been nearly enough to stem the 5 percent drop in sales in the first three quarters of 2016.

Yes, Macy's 9.7 forward price-earnings ratio looks attractive compared to the overall Standard & Poor's 500 index's 17.5. But this might be just a value trap, as "the core business is in state of permanent decline," Weishaar says.

Hertz's troubles start with an ill-fated merger. You have to go back to 2012 to find the root cause of Hertz Global Holdings (HTZ) troubles. That's when it purchased Dollar Thrifty Automotive Group for $2.3 billion. Its stock price has fallen roughly 65 percent since it closed the deal.

The first hiccup came in 2013 when Hertz decided to move its headquarters to Estero, Florida. This led to the departure of many "mid-level revenue managers that didn't make the move," Deutsche Bank analyst Chris Woronka says. The loss of these managers has impacted Hertz's ability to correctly price rentals and maximize its fleet.

Another issue is Hertz's current fleet of vehicles. While Americans have moved toward SUVs and other premium large vehicles, much of Hertz's fleet was made up of smaller cars. It hasn't spent to reflect consumer tastes, while rival Avis Budget Group (CAR) has taken advantage of the trend, Woronka says. In response, Hertz's revenues have fallen 3 percent in the first three quarters of 2016, while Avis jumped 3 percent.

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CEO John Tague stepped down in December amid Hertz's struggles, and was replaced by Kathryn Marinello. But activist investor Carl Icahn holds a massive 33.8 percent stake in Hertz and controls three board seats.

Hertz's issues require spending to fix, but Icahn-controlled companies aren't known for increasing spending to solve problems. "It's fair to say, they did not foresee the operational challenges lying ahead," Woronka says.

Chipotle tries to court customers again. Chipotle Mexican Grill's (CMG) stock has sickened investors ever since in the restaurant suffered a multi-state E. coli outbreak in late 2015. Its stock is off nearly 45 percent since October of that year.

But nearly a year since the problem was fixed, it's hard to tell how long the damage will linger. Through nine months of 2016, revenues had fallen 18 percent compared to the year prior.

"This has been something of a crucible for Chipotle," Bernstein analyst Sara Senatore says. She adds that it forced Chipotle to focus on some issues it had ignored.

In December, Chipotle dropped its co-chief structure, promoting founder Steve Ells to sole CEO. The restaurant chain also has focused on improving what may have lagged in quality.

"It always had some stores not up to best-in-class best practices," Senatore says. "It had so much demand, [it was] not as noticeable."


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But Chipotle's business remains a great draw. It increased its marketing spending from 2.4 percent of revenues in the third quarter of 2015 to 4.8 percent of revenues in the same quarter of 2016, to encourage customers to return.

Chipotle is in a good place to turn things around – it's just a matter of when. The 11 percent run since the start of 2017 is a promising start.

J.C. Penney's problems look familiar. Under previous leadership, J.C. Penney (JCP) tried to shift its focus away from bargains, but the strategy not only failed to attract new customers – it pushed away its base.

Now under CEO Marvin Ellison, it's going back to basics, returning its private brands that connect with customers, controlling costs, offering cheaper options and increasing its promotions. J.C. Penney's customers "tend to react to promotional activity," says Brian Nagel, an analyst at Oppenheimer.

But the turnaround is struggling. Comparable-store sales fell 0.8 percent in the holiday season, and its stock has traded roughly flat over the past three years. It's in the same sector as Macy's, and facing similar struggles.

[See: 7 Turnaround Stocks and How They're Doing.]

The large, mostly mall-based operator is in a "really tough spot," Nagel says.

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