Morgan Stanley Remains Bearish On J.C. Penney, Lowers Price Target

Following J.C. Penney's JCP third quarter results on Wednesday, Kimberly Greenberger of Morgan Stanley reiterated an Underweight rating on the retailer with a price target lowered to $5.50 from a previous $7.50. “While there were a few positive surprises, J.C. Penney's third quarter results highlighted how difficult it is to recover both sales and gross margins in this environment,” Greenberger wrote in a note to clients on Thursday. The analyst adds that the company's fourth quarter guidance appears “aggressive.” Greenberger explains that J.C. Penney's flat third quarter comps implies a 600 basis point sequential deceleration from the second quarter and a 110 basis point decline on a two-year stacked basis. In the fourth quarter, J.C. Penney's comparisons get 680 basis points more difficult and management's two percent to four percent same-store sales guidance implies 880 to 1,080 basis points of sequential acceleration, which is “unlikely,” according to Greenberger. Greenberger previously estimates three percent comp gains in 2015 and two percent comp gains in both 2016 and 2017. However, the analyst states that these estimates appear “increasingly aggressive, particularly with much harder comparisons to come.” As such, the analyst lowered her comp guidance to two percent in 2015, 1.5 percent in 2016 and one percent in 2017.