CEO & Chief Equities Strategist of Belus Capital Advisors Brian Sozzi rates J.C. Penney Company, Inc. (NYSE:JCP) as a Sell as he analyzes the turnaround of the company.

J.C. Penney JCP

J.C. Penney’s turnaround finally here?

Is the long-awaited turnaround for J.C. Penney Company, Inc. (NYSE:JCP) finally starting to appear? Does a +2% holiday quarter comp and a reiterated liquidity outlook make the recent poison pill changes look like a stroke of brilliance by the J.C. Penney management team (tried to thwart opportunistic buys ahead of an extra-special profitable turnaround, aided by NOL carryforward applications)?

In the shortest analyst note on these new J.C. Penney Company, Inc. (NYSE:JCP) developments you will read today, here is everything to know in a nutshell:

In its most important quarter of the year, where cash is raised through inventory liquidation, J.C. Penney Company, Inc. (NYSE:JCP)’s “in excess of $2 billion in liquidity” guidance compared to the $1.71 billion available advertised in the last 10-Q. For the holiday 2012 quarter, J.C. Penney generated $645.0 million in operating cash flow from its business. Rough math has a meager quarter over quarter increase in cash (and lower year on year on an operating basis) for the company’s most critical quarter, on a +2% comp (that slowed from November…).

We believe J.C. Penney Company, Inc. (NYSE:JCP) had to go above and beyond in terms of number of departments promoted, and by how much offered on clearance signs, to attain its liquidity guidance, suggesting non-peak shopping periods will have to be more aggressive to keep inventory turning. This is especially true if J.C. Penney’s undercover plan, as reported by the NY Post, to raise prices blows up in their face, requiring a return to abnormal markdown levels.

Bottom line on J.C. Penney

Willing to stay the course with our two-year plus sell rating on the stock pending: (1) clarity on the quarter over quarter gross margin comparisons; and (2) the raw operating cash flow figure, which will shed light on whether J.C. Penney Company, Inc. (NYSE:JCP)’s operations have normalized or if another penalizing cash raise is likely in 2014.