By all accounts, the last 18-months have not gone well for JC Penney (JCP). Through all its stumbles the Dallas-based retailer has seen $4 billion in sales walk out the door and its stock drop 70%. But now, at least one Wall Street pro thinks it's payback time and is warning that one competitor in particular is looking especially vulnerable.
"If we look for the number one overvalued stock that's lined up straight in the cross-hairs of J.C. Penney coming back from the dead, it's Kohl's (KSS)," says Keith McCullough, founder and CEO of Hedgeye Risk Management, in the attached video. "Kohl's is not under pressure yet but we think they will be."
From a market share perspective he says there was about $800 million available for Kohl's to take from its smaller rival, but Hedgeye research shows they only grabbed $500 million of it and now JC Penney wants it all back.
"JC Penney has to go back to selling sweater sets. And the reality is that Kohl's (also) sells sweater sets," he says, adding that the ensuing cat fight is not going to be pretty. "These are very non-innovative companies that compete head-to-head in a zero-sum game."
To be sure, McCullough is not all hot for JC Penney either, as he refers to it as "an unequivocal disaster" at least until they name a new chief executive to replace the recycled interim roll held again by Mike Ullman.
"Any CEO would be better than the current situation which is basically a gong show," he says in his characteristically blunt manner, calling the short-Kohl's/long JC Penney mix "an interesting pair trade" that's worth watching.
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