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Takeaway: We're surprised at how many people are hanging on to the stale bear case on JCP. At least acknowledge that things are improving.

CNBC is going to have a tough time carting out a bull on JC Penney. Hedgeye retail analyst Brian McGough is the only one. And he's nailing it.

The stock market pinata turned the tables on JCP bears after the bell, pulling a double-digit same store sales rise out of the bag for November. The stock surged higher and was the most actively traded in the after-hours session.

$JCP (and McGough) Stick It to the Bears - jcp1

As McGough wrote in a note to clients earlier this evening, "We're surprised at how many people are hanging on to the stale bear case. At least acknowledge that things are improving." McGough says he is the first to admit that it's only a partial window into the quarter. But, as he says, "This news validates three core parts of our JCP thesis."

  1. There are so many things at JCP that are broken, but absolutely none of them are beyond repair. Consensus won't acknowledge the concept of JCP earning money, while we think that $1.50 in earnings power is within reach (that's up from our recent $1.30 estimate). Once people internalize this eventuality, we think we're looking at a $20 stock (low teens multiple, though we could argue higher).
  2. Even though Wall Streeters may not be big JC Penney shoppers, the fact of the matter is that the average American consumer genuinely wants JCP to exist. Tough for Wall Street to believe, but our work suggests that it's 100% true.
  3. JCP is absolutely gaining share -- when it comps 10% -- 3-5x its average competitor -- it's tough to argue otherwise.

The news gets worse for JCP bears.


$JCP (and McGough) Stick It to the Bears - JCP tail

Hedgeye CEO Keith McCullough points out that there's no resistance to the TAIL (mean reversion) line of $14.61. That represents 40-50% upside.

(Click here to subscribe to Keith McCullough's Real-Time Alerts. As of this writing, he has registered a remarkable seventeen winning trades in a row.)