Market Overview

JC Penney Leads S&P Higher

JC Penney Leads S&P Higher

Shares of J.C. Penney (NYSE: JCP) led the S&P 500 on Monday, rallying up over four percent, after analysts at Oppenheimer released a bullish report on the company.

The retailer has been one of the worst performers of 2012, down over 40 percent year-to-date. Last year, Ron Johnson, known for his leadership of Apple's (NASDAQ: AAPL) retail arm, was brought in with the goal of turning the ancient and declining retailer around.

Johnson, backed by hedge fund magnate Bill Ackman, attempted to radically overhaul the company by dropping discounting in favor of an “everyday low prices” strategy.

Unfortunately for Johnson and Ackman, that tactic largely floundered with J.C. Penney's core target demographic. Earnings reports have been disappointing, and the company has started to burn through its cash.

Monday's price action might be largely the product of a short squeeze, as nearly a third of the company's outstanding shares have been sold short.

To combat declining sales, J.C. Penney has reigned in its aggressive new strategies, turning back to some level of discounting.

Oppenheimer notes, “We are increasingly optimistic that the more price promotional stance that JCPenney is now assuming will allow the chain to make the most of a challenging Holiday selling season and position it well to re-accelerate its aggressive turnaround strategy in 2013.”

Oppenheimer maintained its Outperform rating and $30 price target.

As Johnson has undertaken his transformation, J.C. Penney has shifted from a sleepy retailer to a controversial stock.

Many believe in Johnson's strategy, including Ackman who recently made a somewhat bizarre appearance on CNBC to defend the company. Beyond his goal of introducing everyday low prices, Johnson has also started to push his “store within a store” concept, sectioning off the larger J.C. Penney into smaller retail sections which have proven to be more profitable.

Ultimately, Johnson's transformative strategy may turn J.C. Penney into a dominant retailer. However, if earnings continue to disappoint, he may not be there to see the strategy through.

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