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A Deal with JCPenney Might Be Good for Amazon Stock


Sep. 4 2020, Updated 6:51 a.m. ET

Amazon (NASDAQ:AMZN) stock has emerged as investors’ favorite amid COVID-19. The company has approached JCPenney (NYSE:JCP) to discuss a potential deal, according to a Women’s Wear Daily report.

At $2,426 per share at Monday’s closing, Amazon stock has gained more than 30% YTD (year-to-date). The stock is one of investors’ top picks in the FAANG group, which includes Netflix (NASDAQ:NFLX), Facebook (NASDAQ:FB), Apple, and Google parent Alphabet (NASDAQ:GOOGL). Netflix stock has gained 40% YTD. So far, Apple shares have risen 7.26% YTD. Facebook and Alphabet stocks have risen about 4.0 for the year.

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Amazon stock soars amid coronavirus pandemic

JCPenney filed for Chapter 11 bankruptcy protection on May 15. The coronavirus has dealt a blow to traditional retail sales amid lockdowns and social distancing measures. At $0.18 per share, JCPenney stock has fallen 84% for the year compared to Amazon stock, which has risen over 30% for the year.

While the pandemic disrupted sales at JCPenney, it created a huge business boom for Amazon. The company hired more workers to cope with the surging demand in its retail division.

Families have been shopping online to avoid contracting or spreading the coronavirus. As a result, the demand for Amazon’s online retail service spiked. The company’s sales rose 26% to $75.5 billion in the first quarter due to increased demand. Investors have flocked to Amazon stock. They realize the company’s opportunities amid the pandemic.

According to Women’s Wear Daily, Amazon might purchase part or all of JCPenney. At this point, the apparel retailer has a market valuation of $57 million. There’s an opportunity for Amazon to buy JCPenney at a steep discount. Amazon wrapped up the first quarter with $23.5 billion in cash reserve.

How would Amazon benefit?

JCPenney will close some of its sites in a bid to cut costs. However, the company still operates more than 800 stores, which Amazon could use to speed up its order processing and delivery. For example, Amazon could use JCPenney stores as distribution centers and package pickup locations for its shoppers. Therefore, a deal that gives Amazon access to JCPenney sites could expand its capacity and make the most of the pandemic-driven demand. Acquiring JCPenney could make Amazon stock more attractive.

At this point, Amazon stock has a 24% upside potential to Wall Street’s highest target price at $3,000.


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