J.C. Penney Company, Inc. (NYSE:JCP) has managed to shore up liquidity over the short to medium term with its new stock offering, but that doesn’t mean the company’s problems are over. A new report on J.C. Penney Company, Inc.(NYSE:JCP) from Morgan Stanley estimates that the company’s cash burn is going to be worse than expected going forward, and that means the price of the stock may be in for a fall.

J.C. Penney

The report, which was authored by Morgan Stanley analysts Kimberly C Greenberger and Jay Sole, puts a price target of $6 on shares in J.C. Penney Company, Inc. (NYSE:JCP) and rates the stock at Underweight. The analysts say that a robust recovery is expected, but that does not support the current price of the company’s shares.

J.C. Penney cash burn

According to the report J.C. Penney Company, Inc. (NYSE:JCP) is going to be burning more cash than previously anticipated through the third and fourth quarters. With the company’s recent secondary offering that does not mean the end for the company, but it does lower expectations for the next couple of quarters.

The analysts call the J.C. Penney Company (NYSE:JCP) recovery path unclear, and suggests that even a robust recovery does not support a share price of more than $8. On today’s market the price of J.C. Penney Company, Inc. (NYSE:JCP) stock had fallen by more than 2% at time of writing to sit at just over $8.50 per share.

J.C. Penney recovery

The Morgan Stanley analysts say that they are expecting a “robust recovery” at J.C. Penney Company, Inc. (NYSE:JCP). They see the retailer recovering up to $2 billion of lost sales in the next two years and expects the company’s operating margin to recover by around 910 bps in the same period. Free Cash Flow and Earnings Per Share should both turn positive in 2017, but that doesn’t support the company’s current valuation.

It is the risk against the reward that puts the Morgan Stanley price target at $6. There is no guarantee that J.C. Penney Company, Inc. (NYSE:JCP) will continue to hit targets and get back into the retail market in the same way it did in the past. The Bill Ackman campaign to make the company more valuable has failed, and it may result in an end to the company.