Kohl’s Corporation (KSS), Macy’s, Inc. (M): The Case for J.C. Penney Company, Inc. (JCP)’s

Macy’s, Inc. (NYSE:M), which, like Penney, mainly operates in malls, is in slightly better shape. The company has equity of $17 billion on $27 billion in sales, in line with Kohl’s Corporation (NYSE:KSS), even though it brings less than 5 cents of sales down to the net income line. The debt-equity ratio is slightly higher than Kohl’s as well, about 33%, but it throws off slightly more cash than Kohl’s, with both companies at near $1.5 billion a year. The P/E is a little higher than Kohl’s, slightly over 13.

Macy’s, Inc. (NYSE:M) is what Penney wants to be: a marginally profitable mainline retailer that can anchor shopping malls rather than being a drag on them. One of the biggest risks for Macy’s, Inc. (NYSE:M) shareholders, in fact, may be a Penney’s collapse, as it would decrease customer count at malls it counts on for its own survival.

A Foolish Bottom Line

Big investors are not betting they can turn Penney’s into Wal-Mart, which has 50 cents in equity for each dollar of sales, nor Costco, the current darling of the space, which shares that ratio. They think that if Ullman can make Penney’s what it was before Ron Johnson and Bill Ackman darkened its doors, they will make some huge profits.

If J.C. Penney Company, Inc. (NYSE:JCP)’s had $17 billion in sales, as it did in 2011, and had a conventional retailing valuation of 50 cents in equity for each dollar in sales, you’re looking at a stock that’s worth $8.5 billion, against the current valuation of $3 billion. That’s just if it gets back to where it once was, which should be possible with the old team back in place.

All this is speculative, of course. J.C. Penney Company, Inc. (NYSE:JCP) may be a great place to throw a little mad money right now, speculative capital you can afford to lose, risk capital. Investors who are afraid of losing money are better off looking elsewhere, but if you’re of a speculative bent, like George Soros, Kyle Bass and their ilk, a little play on this stock may turn out OK.

The article The Case for Penney’s originally appeared on Fool.com and is written by Dana Blankenhorn.

Dana Blankenhorn has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.