While J.C. Penney Company, Inc. (NYSE:JCP) might be in some legal trouble, some issues related to Goldman Sachs also require some serious addressing. We are not a conspiratorial website, but recent Goldman actions involving  J.C. Penney seem odd, to say the least. Additionally, others are questioning the relationship between the two companies, including The Wall Street Journal (this was even before the recent note mentioned below was issued).

J.C. Penney

J.C. Penney Company, Inc. (NYSE:JCP) and Goldman Sachs timeline

On September 25th Goldman fixed income issued a report downgrading JCP debt, and warning investors that the company could be headed for bankruptcy. On September 27th  J.C. Penney announced that they were issuing $1 billion of shares and that Goldman would be the underwriter. Then Goldman Sachs issued a report with a neutral rating on the struggling retailer, and lowered the price target from $14 t0 $10, but seemed to be positive. While the note has a bear case of $1 it has a bull case of $20.   To get a sense of the recent roller coaster involving  J.C. Penney shares see the chart above.

Of course there is a Chinese firewall, but why the company is involved in both the underwriting and research side (especially in the same week) remains unknown. Below is a brief excerpt from the most recent Goldman report by Stephen Grambling.

J. C. Penney Company, Inc. (JCP): What’s changed

J. C. Penney Company, Inc. (JCP) announced this morning the pricing of a public offering of 84mn shares of common stock at $9.65 per share, raising $811mn in proceeds. JCP had also given intention to grant the underwriters a 30-day option to purchase up to an additional 12.6mn shares. With this offering, management reiterated its expectation that JCP comps would turn positive by the end of 3Q and remain positive in 4Q. Additionally, the company expects to end the year with $1.3bn in liquidity excluding the offering.

Below Goldman’s assumptions behind the recent price target change.

j.c.-penney-analysis

Correction: September 29, 2013

An earlier version of this article incorrectly stated that Goldman increased the price target for JCP. Goldman lowered the price target as mentioned in this article.