Whitney Tilson Adds to JCP around $27

After lousy earnings sent JCPenney shares plunging on Wednesday, top hedge fund manager Whitney Tilson tells us, he hit the buy button.

“Our view about how much JCP will be worth 5 years from now hasn’t changed at all -- despite some pretty grim sales numbers,” says Tilson, who is founder of T2 Partners and a CNBC Contributor.

His firm pulled the trigger in the high 27 and low 28 range. However, Tilson’s optimism certainly does not seem like the prevailing view on Wall Street.

Investors ran for the exits after the latest JCPenney earnings results showed same-store sales dropped 18.9 percent in the first quarter, more than the 12.2 percent decline expected by analysts, according to Thomson Reuters I/B/E/S.

“This happened because JCP got into a cycle of running something like 800 promotions a year,” explains Tilson, “and they conditioned their customers to only shop when they were getting a huge discount.”

That sounds bearish – but dig down and Tilson says you’ll find a compelling thesis.

“Before CEO Ron Johnson came in, only 0.2% of what JCP sold was at the price marked on the merchandise. In other words, they taught their customers to never buy at the marked price.”

Tilson explains that Ron Johnson thought the strategy was crazy – and decided to stop it cold turkey. And it worked.

“Last quarter the majority of what they sold was at the marked price. They went from 0.2% to 67% in only one quarter! However, that caused shock among the JCP customers,” says Tilson.

In addition, Tilson sees other bulish catalysts. JCP has made progress in cost cutting and they’ve inked deals to have stores within stores featuring popular brands including Nike and Martha Stewart.

“Our view is that JCP is offering really good pricing and they’re weaning customers off coupons. I think we see sales increase buoyed by a lot of great new merchandise,” he says.


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Posted by CNBC's Lee Brodie

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Trader disclosure: On May 16, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Stephen Weiss is long JPM; Stephen Weiss is long CSC; Stephen Weiss is long UUP; Stephen Weiss is short JCP; Stephen Weiss is short CMI; Stephen Weiss is short MT; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Josh Brown is long JPM; Josh Brown is long HD’ Josh Brown is long XBI

For Whitney Tilson
Whitney Tilson is long JCP

CNBC.com with wires.