Barron's says that despite a rough 2007 that has seen shares of J.C. Penney (JCP) lose about half their value, the giant retailer is in a strong position to rebound. Shares trade at about 9-times 2008e earnings, cheaper than the 10-times-plus rivals like Kohl's (KSS) and Macy's (M) command; one portfolio manager says the stock is at its cheapest in 15 years. Strengths include the biggest web business of any department store (sales of $1.3B last year); management that tends to "do what they say they are doing to do"; and a growth strategy that sees new stores moving away from weakening shopping malls toward closer-to-home off-mall locations.
Some have criticized the firm for not repurchasing more than the $400 million in shares it took this year, but CEO Mike Ullman argues the company's better off investing in new stores and renovations. An industry-leading 50% of its revenue comes from private labels and exclusive deals, which gives its buyers greater leverage. Recent integration of Sephora outlets into its stores is driving younger shoppers. Citigroup analyst Deborah Weinswig says, "He (Ullman) has really worked hard to develop a culture that asks customers what they want and then to actually give it to them." She has a 12-month price target of $69. Others think it can go higher than that when the economy turns.
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