Shares of J.C. Penney (JCP) surged as high as 16.8% since it was disclosed late Thursday that activist investor Bill Ackman's Pershing Square Capital Management had obtained a 16.5% stake in the struggling retailer. Pershing is now J.C. Penney's largest shareholder.
Penney shares jumped from $29 at the market close on Wednesday to as high as $33.88 on Friday morning, with investors apparently convinced that Ackman will be able to make moves to increase the company's value. By mid-afternoon Friday, shares of Penney were trading at $32.90, up 4% for the day.
Morningstar surmises Ackman may pursue a real estate-based strategy to squeeze more value out of the retailer. Penney owned 416 of its 1,108 locations at the start of this year, many of which could be unloaded or leveraged.
"Should Pershing pursue a real estate value-unlocking transaction through a real estate investment trust spin-off, similar to the strategy pursued at Target, we think the transaction would be beneficial to the shareholders of the new entity, but not attractive to the spin-off REIT shareholders," analyst Paul Swinand wrote in a note to investors on Friday. "Pershing would probably unload its J.C. Penney shares after the spin-off, so such a transaction would be beneficial to the new entity, but at the cost of concentrating the real estate risk in the REIT entity."
The intense competition Penney is facing from other retailers has driven its stock price down over the last year, depressing it to a level where Ackman could buy in on the cheap. Even with its recent run-up, the stock is still down 6.37% year-over year. Those jumping in now hope to see those numbers pop even more as the economy improves and consumer spending recovers next year.
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