The best thing about Penney is that the bar for success is set very low. Since he took over, Johnson has taken out $900 million in costs. Its sales per square foot should rise with every redesigned store. If Penney achieves the pre-Johnson level of $150 per square foot and gets to keep $700 million of cost cuts, its earnings power will be $3 to $4 per share. If sales per square foot come back to the 2007 peak of $170, earnings will jump to $6 a share. Considering that Penney stock is trading at about $19, if your career can survive neutered theta in the short run, this is one cheap stock for the long run.
Vitaliy Katsenelson (email@example.com) is CIO at Investment Management Associates in Denver and author of The Little Book of Sideways Markets.