J.C. Penney Takes a Bite Out of Apple

by Justin Dove, Investment U Research
Thursday, June 16, 2011

It’s amazing how one man can change the price of a stock so rapidly these days.

J.C. Penney (NYSE: JCP) saw its stock spike up 17.5 percent Tuesday on news that Ron Johnson will be leaving Apple (Nasdaq: AAPL) to become the retail giant’s next CEO.

Johnson is best known as the brains behind the Apple Store, which has become a resounding success in retail. Now he aims to tackle what could be his biggest challenge yet.

J.C. Penney was hit hard in the 2008 recession. The retail giant saw a 52-week high of $51.42 fall to as low as $13.95 per share. It has since rebounded and remained fairly consistent at approximately $30 per share.

The shares leveled off a bit on Wednesday to $34 after closing at $35.37 on Tuesday. It’s too early to tell if the addition of Johnson is truly worth the spike in J.C. Penney’s value, but here are some points to think about:

Johnson has a $50 million stake to improve the stock’s value over the next six years. As CNNMoney senior editor Jennifer Reingold points out, the investment is in the form of warrants… so if the stock lowers in value or remains at $29.92, Johnson loses out on the $50 million.

While J.C. Penney doesn’t seem very similar of a playing field to Apple Stores, Johnson also had a hand in the rise of Target (NYSE: TGT) before he left for Apple.

Some pundits, such as Seeking Alpha contributor Adam Gefvert, don’t buy the hype surrounding Johnson. While Johnson may improve the bottom line down the road, Gefvert chalks up this recent jump in the stock to a premature reaction to news by investors.

Retail sales are up 8 percent from May of last year. This may be a signal of increased consumer confidence going forward. Something that may help J.C. Penney with or without Johnson.

We probably won’t see any of Johnson’s direct effects within J.C. Penney for some time. But, it will certainly be interesting to see how this plays out.

Good investing,

Justin Dove