Here’s The Lonely Bear Case On JC Penney

JC Penney woman

JC Penney stock rocketed 18.8% higher on Thursday following Ron Johnson’s talk on creating the next Apple.

Lots of banks upgraded the retail company, with Goldman and Citi raising price targets; Deutsche Bank raising from sell to hold; Macquerie and Piper Jaffray raising from neutral to outperform (via localised USA).

But not everyone was convinced. Morgan Stanley reiterated an underweight rating. BMO Capital Markets lowered from market perform to underperform.

Let’s look at a few factors in BMO’s bear case:

  • “We believe the current stock price reflects more improvement in sales and margin than the company is guiding to or that we believe is achievable in FY2012.”
  • Changes in price and product could alienate the core customer.
  • “We believe management’s expectations about adding multiple credible brands with strong growth prospects could be overly optimistic.”
  • Heavy use of promotional events may train customers to show up only during sales. As for in-store shops, many customers don’t like them.
  • If JC Penney really does anything innovative, other brands can copy quickly (unlike with Apple).

Now check out Ron Johson’s famous presentation >