One Analyst Thinks Joe Fresh Might Just Work for JC Penney

J.C. PenneyJCP is up $1.29, more than eight percent on news that ISI Group analyst Omar Saad said in a note to investors that the retailer may decide to convert its 300 top locations into a real estate investment trust, or REITs.

With this move, the company could sublet space to other retailers, Saad said. Such an arrangement could generate an estimated $1.2B of rental income and lift the company's stock to about $46.

In the meantime, Oppenheimer analyst Brian Nagel stopped by several of JC Penney’s new Joe Fresh shops in New York and New Jersey over the weekend and said he was "impressed" by what he saw.

Nagel said that the Joe Fresh merchandise was both "compelling" and "well-priced." He also noted that the shops-within-a-store look at JC Penney seems to be a bright spot for the beleaguered retailer.

At the same time, Nagel believes the company will not rebound for some time and that it is facing a number of near-term risks. As a result, he maintained a “Perform” rating on the shares.

Marketwatch led it’s Monday “Movers and Shakers” report noting that JC Penney shares were outperforming the S&P 500, not exactly a common header these days and almost certainly welcome news to embattled JC Penney CEO, Ron Johnson.

At the same time, Barron’s, while acknowledging the good news, also points out the fear that Penney could default on its debt, especially if business continues to flounder and the company ends up burning through its cash reserves.

Reuter’s notes that hedge fund York Capital Management is shorting JC Penney debt, pitting York’s James Dinan against Penney investor-fan William Ackman. Ackman, at Pershing Square Capital Management, and a big fan of JC Penney CEO Ron Johnson, began buying Penney stock in 2010, Reuters says.

Penney has denied rumors that Johnson was either resigning or being fired. Johnson’s store-within-a-store strategy, the basis for a court battle with Macy’s M over a contract with Martha Stewart Living Omnimedia MSO, hasn’t exactly boosted the company’s market value – now down to $3.6 billion from a high of $8 billion a year ago.

However, with news about the positive impact of Joe Fresh on JC Penney’s new look, company officials, including Johnson clearly believe that eventually this makeover move will pay off. Ultimately, customers will decide whether the store-within-a-store concept, including Joe Fresh and others, will be a success or not. Investors can only hope they like the “Fresh” look.