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Investors aren't buying JCPenney

Many Wall Street analysts and retail experts think J.C. Penney Co. Inc. finally found the right road to future growth. But investors, skittish about retail stocks in general and department store stocks especially, are not buying it yet. JCPenney's stock sold at a discount for months. And when JCPenney reported Thursday that earnings were depressed in the fourth quarter, the stock dropped $2.75 overnight. After trading as high as $68 last week, JCPenney stock closed Friday at $65.12{ cents a share on the New York Stock Exchange.

"It was the earnings statement," says Ed Johnson, an analyst with Prescott, Ball & Turben Inc. in New York.

Never mind that fourth quarter results were being compared with a quarter in which earnings were boosted by the $139-million sale of the company's New York headquarters. Excluding the building sale, the company pointed out, earnings for the quarter increased 24 percent.

"It's worth a minimum of $78," said Linda Morris of Provident National Bank in Philadelphia who estimated JCPenney was trading at a 22 percent discount even before the earnings report triggered a nosedive. "It's a sound company offering a good yield."

Perhaps, but some see potential fallout from Penney's repositioning. Penney's move to improved goods could chase off its longtime loyal customers who might revolt at seeing higher price tags in upgraded surroundings. JCPenney's market share was shrinking as recently as 1988. Some analysts think an economic downturn will hurt rather than help JCPenney.