JC Penney's Pre-Announcement Disappoints As Margins Stay Under Pressure

JC Penney's third-quarter update and full-year fiscal 2017 outlook made it clear that the company continues to face gross margin pressures and various initiatives to boost sales are taking longer than expected, the analyst wrote in the downgrade note. As such, the company will continue to be in a position where its free cash flow will be allocated to pay down its debt load.

Following the disappointing announcement, JC Penney's stock was trading at a 10.4x multiple based on the analyst's revised fiscal 2018 earnings per share of 30 cents (versus a prior estimate of 54 cents). this still marks a premium versus the overall department store group at 10x excluding JC Penney so shares are no longer attractive to buy. In fact, the analyst no longer holds a constructive rating within the entire department store sector.

At time of publication, shares of JC Penney were down 10.1 percent at $2.81.