UPDATE: Deutsche Bank Reiterates Hold Rating, Lowers PT on J.C. Penney Company as Improving SSS is Offset by GPM Decline

In a report published Tuesday, Deutsche Bank analyst Paul Trussell reiterated a Hold rating on

, but lowered the price target from $12.00 to $6.00. In the report, Deutsche Bank noted, “Two weeks ago, JCP announced that SSS trends improved, with the month of September down only 4% compared to -9.8% in August and -11.9% SSS in 2Q. The current trajectory keeps the company on pace toward its goal of Flat SSS by November (we're modeling -5.5% SSS for 3Q) and could potentially lead to upside versus our +3.0% 4Q estimate. Offsetting top-line improvement, however, are comments on Gross Margins, with JCP saying they continue to be negatively impacted due to lower clearance margins, which are a result of the overhang of inventory that remains from the prior two quarters. This higher level of clearance units, along with its return to a very promotional pricing strategy, is leading us to substantially reduce our GPM forecast over the next few quarters, including modeling 3Q13 GPM down 272 bps to 29.8%. On liquidity, we are modeling $2.4 billion in cash at year-end, even on our lowered estimates, in addition to ~$300M available on its credit facility. In our view, if JCP is able to drive positive traffic while improving margins (last achieved in 2Q10), we believe liquidity concerns will be pushed out to 2015. Given heightened inventory levels (modeling inv. levels up 30% YOY at YE), the risk to JCP, is if it is unable to turn the corner on sales or GPM in 4Q13, as it could potentially lead to vendor orders being cut for Fall 2014. Our price target is cut to $6 (on 8x forward EBITDA + remaining Real Estate Value) as we await signs of improvement or contraction heading into the important Holiday season.” J.C. Penney Company closed on Monday at $6.42.