Bill Ackman Finds a Friend on J. C. Penney (JCP)

November 21, 2012 12:15 PM EST
Get Alerts JCP Hot Sheet
Price: $6.89 +0.58%

Rating Summary:
    12 Buy, 14 Hold, 8 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 22 | Down: 16 | New: 13
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In what promised to be one of the biggest turnarounds in corporate history with the hiring of Ron Johnson as CEO of J. C. Penney (NYSE: JCP), has turned into an unmitigated disaster: Comps down an unthinkable 26% in Q3 and expected to be down ~21% in Q4, net loss of $0.93/sh. in Q3 and EPS expected to be down over 50% in Q4, cash position down to ~$520M from ~$1.5B, credit downgrades and spiking debt yields. However, through it all hedge fund manger Bill Ackman has stuck by the retailer and expects that over the long-term the turnaround will play out.

Ackman is not alone.

One of the newer and last remaining bulls on J. C. Penney, Oppenheimer's Brian Nagel, is on the same page as Ackman. In a note to clients Wednesday he said while near-term issues are likely to persist, he is constructive longer term.

Behind the noise, Nagle said a recovery at JCP is still taking shape and that over time the company's repositioning will reward shareholders.

He gives investors 5 things to consider:

1. Remodeled Areas of JCP Stores Are Performing Well with Sales Productivity in the Company's Initial Shop-in-Shops Tracking Better Than 30% Ahead of Pre-Reset Levels;

2. JCP Has Secured Vendor Commitments Necessary to Launch an Additional 30 Shop-in-Shops in 2013, Many of Which Will Showcase Merchandise Assortments New to JCPenney Stores;

3. Activist Shareholders Pershing Square and Vornado Continue to Have Combined Economic Exposure of About 35% of JCP’s Outstanding Shares;

4. Management Is Aggressively Tweaking Its Everyday Low Price (EDLP) Strategy to Include Select, Creative Traffic-Driving Events; and

5. Market Sentiment Toward JCP Remains Decidedly Negative with Nearly 30% of the Company's Current Float Held Short.

"We continue to believe the company can earn at least $3.00 longer term (vs. FY12E loss of $2.45), but recognize that following recent fundamental missteps, it will require more time for JCP to reach this objective," Nagal stated.

He reiterated his Outperform rating and price target of $30.

For an analyst ratings summary and ratings history on J. C. Penney click here. For more ratings news on J. C. Penney click here.

Shares of J. C. Penney are relativly flat currently at $17.22.

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