Analyst Deborah Weinswig lowered her rating on the struggling retailer to "Neutral" from "Buy." She dropped her price target to $15, from $22.
Penney shares fell 1.9 percent to $14.68 in premarket trading Wednesday. The stock has already lost 60 percent of its value over the past 12 months, hitting a four-year low Tuesday.
CEO Ron Johnson, as part of his effort to revitalize Penney, had made big changes to the company's pricing strategy, slashing the number of sales in favor of everyday low prices. Since that policy began last year, Penney has reported huge losses, with sales declines in four straight quarters.
In its most recent quarter, the Plano, Texas, company reported a bigger-than-expected loss as revenue plunged nearly 30 percent. Johnson has acknowledged that the 1,100-store chain had made mistakes and said in late February that Penney would start offering sales in stores every week.
Penney has other worries aside from the steep sales drop. It is in a legal battle with Macy's regarding its ability to sell Martha Stewart-brand products. It has already invested in her products, and if Penney loses, it could wind up with merchandise that it isn't allowed to sell.
Weinswig said that after a trip to the company's headquarters, she still supports Penney's long-term strategy, which also includes bringing in hipper designer brands such as Betsy Johnson and remaking outdated stores. But she's concerned that Penney's pricing strategy has "yet to resonate" with shoppers, and worries that attempts to fix pricing and marketing won't help sales recover fast enough. She also noted that the company's plans could be further derailed by the outcome of the Macy's lawsuit, given Penney's substantial inventory commitments to the Martha Stewart products.
Media reports this week said that a large shareholder sold a chunk of the company's shares and that some of Penney's board members may want to sell the chain or replace CEO Ron Johnson.
Weinswig noted that asset sales, a management shakeup or plans to take Penney private could limit further stock-price declines.