Aladdin Capital Management recently upped its allocation to JCPenney on the view that the giant retailer may sell its Eckerd drugstore chain. "If they did sell the Eckerd chain it could fetch a good price and enable them to delever," says Dale Spencer, one of the portfolio managers of the firm's $2.5 billion taxable bond portfolio. The department store chain's 8% notes of '10 were bid at 109.5 last Tuesday--up a point and a half.Allen Questrom, Penney's ceo, recently told investors that he had been in discussions with potential buyers, and would decide by year-end whether to keep the unit, according to Dow Jones Newswires.
Despite the enthusiasm from investors, Carla Casella, analyst at J.P. Morgan Securities, questions whether Penney will find a buyer for Eckerd. She says that many of the potential buyers, including Wal-Mart, CVS, Walgreens and grocery store chains such as Kroger, have either said publicly that they have no interest in acquiring a drug retail unit, or have demonstrated that they can grow on their own. She has an underweight on Penney's longer-dated issues, and an overweight on the shorter-term debt.