BTIG Thinks JC Penney is a Bargain

In a note released Thursday, analysts at BTIG initiated JC Penney (NYSE: JCP) with a Buy rating and $22 price target. Analysts believe that shares of the retailer are, at these levels, an “option on the ultimate outcome of the firm's transformation.”BTIG's note on the retailer is particularly extensive, going through most of the issues the company faces. In particular, the firm views JC Penney as a collection of three different assets: its legacy retail business, the new retail business, and the real estate that the company owns.For the first part, BTIG believes that the old retail business is “wounded, but salvageable.” In fact, management's wounding of this business may have been the most significant factor in the retailer's decline.Current CEO Ron Johnson was brought in 2011 to implement a turnaround strategy. As part of his strategy, Johnson eliminated JC Penney's extensive system of discounting, instead opting for “everyday low prices” similar to the strategy employed by Walmart (NYSE: WMT).However, this decision may have pushed away many of the retailer's core customers. When JC Penney reported earnings last month, it revealed that its same-store sales had declined over 30% from the prior year.As to the success of its new retail business -- the “shop-within-a-shop” strategy laid out by Ron Johnson -- BTIG says that its price target on JC Penney “is not dependent on remodel success.” Still, BTIG believes that Johnson's “initiatives will eventually have an impact and give JCP the tools it needs to recapture market share.”The bull case on JC Penney over the last few years has been largely based on hopes for JC Penney's new strategy. In its analysis, BTIG makes little mention of the shop-strategy potential, but Bill Ackman, one of the retailer's largest shareholders, has consistently emphasized the potential for the strategy in media appearances.Joe Fresh, one of the most hyped JC Penney shops, is set to open this upcoming weekend. The Canadian designer has little retail exposure in the U.S. outside of New York City, but through its JC Penney shops, it will instantly gain a foothold across North America.Lastly, when it comes to real estate holdings, BTIG believes that JC Penney could raise $3 billion in a sale of its actual holdings, and $500 million in the sale of its leasing rights. In BTIG's opinion, that means that in a worst-case scenario (a liquidation) JC Penney shares are worth at least $11.Despite BTIG's positive comments, JC Penney shares are down nearly one percent on Thursday.