Editor's note: What follows below is a brief, complimentary excerpt from a report just issued by Hedgeye Retail Sector Head Brian McGough. It comes on the heels of J.C. Penney's shares' precipitous plunge to 13-year lows. To learn more about how to subscribe to McGough's "Hedgeye Retail Pro" research please click here.
Bottom Line
We’re buyers of J.C. Penney (JCP) on today’s sell-off. Let’s be clear about what kind of call this is, because it’s definitely not for the faint of heart.
We still know nothing about the long-term strategy or upcoming management transition, and are still living with the balance sheet baggage from the past two years.
This is a company with no square footage growth, where the average consumer could care less if it exists or not. (Sounds great, huh?). But everything has a price. And at $10, way too much credence is being given to the ‘terminal’ call.
We can say a lot of bad things about JCP, but we definitely don’t think it is terminal and our recent work suggests that much of the business lost is definitely recoverable.
As it relates to liquidity, we think that the only reason why the company would act now is to ensure that it has the best pool of CEO candidates possible (questions around liquidity would otherwise weed out the best candidates).