JCPenny (JCP) has been making a comeback.  The oft-beaten retailer is set to announce earnings next week, on May 15th, and by all reports it should be a positive one.  This is not a position I’d be willing to hold for the long term (that’s a bit hard to stomach when I’d never even consider shopping there), but I think it could provide a shorter term gain for a few reasons.

First, as I posted last week, consumer spending has me optimistic about retail in general.  The big consumer spending numbers, coupled with good recent employment news, makes me think the next set of retailers’ earnings reports will be generally positive. 

Second, JCPenny has been getting a lot of new love in the market.  The stock just got upgraded by UBS and Citigroup, sending the price up a bit.  This follows on the heels of the company’s last earnings report in February, which showed positive news.  JCP reported a loss of $0.68 per share, compared to a projected $0.85 loss per share, and the stock shot up 16% right after the announcement.  Again, the positive climate overall for retailers has me thinking JCP can repeat this performance again.

Finally, I like JCP from an intrinsic value perspective.  If you added up the book values of JCP’s cash and real estate holdings and divided it by the number of shares outstanding, you’d get about $11 per share.  That means that even if JCPenny just called it a day, closed its doors, and liquidated all of its holdings; it would be worth $11 per share.  That’s nearly 25% higher than the $9 per share the stock is trading at right now.  So in the absolute worst case scenario, investors getting in now wouldn’t be too bad off.

That being said, that cash position may not  be sustainable for the long term if JCPenny continues to be unprofitable and burn through its cash.  But for the time being it’s a very nice cushion for investors. 


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