Gilford's Bernard Sosnick Tells Ackman To Get Out Of J.C. Penney (JCP)

In a sharp criticism of activist investor Bill Ackman's strategy with J.C. Penney JCP, Gilford Securities' Bernard Sosnick tells Ackman to "get out: for your sake and ours." Gilford has a Buy rating on J.C. Penney.

Destructive Force

"Bill Ackman, in our opinion, has been a destructive force," wrote Sosnick Monday. "Penney had fixable problems but veered to the verge of declaring bankruptcy. We surmise much of it was due to Ackman's meddling."

Sosnick also says that current interim CEO Mike Ullman is the right man for the job on a longer-term basis, however he notes that Ackman could serve to disrupt Ullman's work. "[Ullman] knows what is required to get out of a financial mess. That Ullman chooses not to confide in Ackman is not surprising. We are unable, however, to judge whether the Board is being kept properly informed as Ackman claims."

"Ackman wants Allen Questrom as Chairman of the Board," continued Sosnick, news which was reported late last week. "Questrom would be the best person for the job. But we doubt he would accept the role with a divisive provocateur on the Board. We do not trust Ackman's input in a search for a new CEO, given his previous performance, nor should other Board members. We surmise that Questrom would not welcome his second-guessing."

Strong Mother's Day Could Show Upside

Although Sosnick fears that Ackman is doing damage to J.C. Penney's brand, he does note that Mother's Day sales could have been better than expected. This is something that Ackman had alluded too earlier from discussions with the board.

"From what we see and hear in the stores, corrective actions are working. Traffic has improved, customers are buying on key shopping dates, basic inventories are rebuilt, and clearances are normal, not abnormal as a year ago. Stability is returning: Credit Ullman for that. Ullman might not be doing what Ackman wants—It might be better that way."

"We think that beginning by Labor Day, JCP's sales and earnings comparison will improve significantly and that JCP shares will trade higher on expectations that operating results will normalize and EPS will rebound."

Shares Lower

J.C. Penney shares traded sharply lower in early Monday trade on the fears that Ackman will fail to turn the company around. Shares fell 2.1 percent to $12.60 per share, just off of the 52-week low of $12.34 made on Friday.