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Walmart Needs to Buy J.C. Penney to Thrive

Stocks in this article: WMT JCP AMZN FDO TGT

NEW YORK (TheStreet) - It would be a gross understatement to say that Walmart (WMT - Get Report) has an image problem.

TheStreet columnist Rocco Pendola and retail expert Brian Sozzi have chronicled several of Walmart's failures while offering a comprehensive suggestions for how to fix them. So it's a bit disappointing that an acquisition of J.C. Penney (JCP - Get Report) never made their list.

Walmart reported weaker-than-expected results Thursday, which sent the shares down almost 2.5%. (It's back up 0.3%, above $77, as of Friday at 3 p.m.) The stock has traded flat in 2014. But the shares are down 2% in the trailing twelve months.

During that span, the company has fought vigorously against federal regulation regarding taxes. It has been set back by the slow delivery of income-tax refund checks to consumers. Cuts to food stamps have hurt its consumer base.

And when you factor in the public backlash Walmart has suffered from low wages for its frontline workers and the chronic perception of unfair business practices towards "mom & pop" shops, no company has been more vilified. In my opinion, unfairly so.

J.C. Penney, on the other hand, just posted results that beat Street estimates for revenue and profits. Since J.C. Penney shares hit an intra-day low of $4.90 on Feb. 5, the stock has been on a steady upward march, up roughly 71%. And Thursday's results affirmed investors' faith that not only has this stock bottomed, but J.C. Penney is poised to be retail's best-performing stock in 2014.

To date, the only thingthat iconic retail brand J.C. Penney has been guilty of is poor execution. But things have taken a turn for the better since CEO Myron Ullman was reinstalled to replace Ron Johnson. Ullman once held the post until he retired in November 2011. As is evident in his Penney's recent results and the stock's movement, Ullman's making the right moves. 

An argument can be made that Walmart has missed its optimal acquisition opportunity. But the more pressing question is about the future.

To what extent can Walmart hold onto its reign as retail's largest company in a world that Amazon (AMZN) is looking to dominate?

Some analysts have suggested that Walmart should buy Family Dollar (FDO). But what would be the point?

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