Goldman Sachs Downgrades J C Penney, Says Turnaround Is 'Stalling'

Stephen Grambling of Goldman Sachs downgraded shares of J C Penney Company Inc JCP on Wednesday to Sell from Neutral with a $5.50 price target.

Grambling's downgrade follows several concerning aspects within the company's third-quarter release that raises questions over the sustainability and timing of its turnaround.

Specifically, Grambling notes that the company's comps are converging with the industry even as sales remain 30 percent below 2011 levels. Also, the analyst points out that the company's third-quarter e-commerce sales “deteriorated” to a 3 percent growth compared to peers that are growing e-commerce sales in the double digits.

Grambling also adds that margin improvements are “likely to wane” in the coming year now that the company has improved its inventory.

Bottom line, the analyst now believes that competitive changes within the industry from off-price and online retailers will prevent J C Penney from achieving its multi-year outlook. As such, investors could expect future earnings misses and that strategic alternatives (such as store closures or monetization of non-core assets) will not unlock significant value for shareholders.