Is J.C. Penney Co. Inc. (NYSE: JCP) doomed? Some market pundits face this potentiality more and more, even as others believe the company can go on operating in a restricted manner for years. Now 24/7 Wall St. has received a research note showing that a $3 price target is not even being maintained.

Sterne Agee’s Chuck Grom maintained a Neutral rating on the down and out retailer, but he suspended his $3.00 price target on the stock. Keep in mind that the price as of Wednesday was $6.00. The report offers analysis of J.C. Penney’s current liquidity position, future cash raising options and a path of positive annual free cash flow.

The net message is one of caution — as you may have guessed. Grom said:

Overall, we believe liquidity concerns could resurface in 2014 despite ~$3 billion in capital raised over the last year. That said, the company still has several options to raise funds, if necessary.

Sterne Agee projects that the company will burn through about $2.7 billion in cash in fiscal 2013 with a net loss of about $1.8 billion, another $600 million of depreciation and amortization (offset by a $630 million working capital use), and capital spending of about $990 million. The company also accessed capital markets three times: one was drawing down $850 million on its credit line, second was securing a $2.25 billion term loan, and last was the $785 million equity offering last October.

Grom has concerns about J.C. Penney’s liquidity in just a few quarters, and he also warns that the 2.0% comparable store sales growth in 2014 is ambitious, as is the notion that margins will recover to 35.5%. Even at that rate, the end result is another $800 million in cash burn. The analyst said:

In our view, dangerously low liquidity levels augment the odds of another capital raise and we believe the company may/should choose to act sooner rather than later (particularly with the stock rallying from $5 to $6 recently) when options are more limited. To this end, we estimate the company may need a $500-$750 million liquidity infusion given the current pace of sales/margin recovery.

Sterne Agee still sees some liquidity options for J.C. Penney. After Grom worked on some numbers with Sterne Agee’s High Yield Credit analyst Rishi Parekh, several options were shown:

• (1) raise ~$500 million in debt through a term loan 2nd lien to its ABL or work with lenders to tap ~$400 million through the accordion feature on its ABL;
• (2) sell non-core assets such as (a) its 240 acres of real estate (~$150 million est.), (b) ~30 unencumbered automotive/tire locations, & (c) its five mall JVs (~$100 million est.);
• (3) monetize its below market leases for an estimated $100-$200 million;
• (4) issue a convert, although unlikely given the stock’s low market capitalization and extreme volatility, and/or
• (5) issue additional equity as a last resort if absolutely necessary. Regarding option five, if such an equity offering were priced at approximately $6 per share, we estimate that a ~$650 million capital infusion would be roughly 25% dilutive to existing shareholders.

On a path to positive annual free cash flow, Grom asks if J.C. Penney can still dig itself out of this predicament. His short answer is yes, but then comes the warning that a significant change in comparable sales trajectory needs to take hold.

With the elimination of a $3.00 price target that is only half of the current price, equity investors have to start wondering if the bond holders and creditors may be the only ones holding any real value in this endgame. At the end of the day, this fight might not end up being over the liquidity and current assets. It may simply be over how to monetize the $5.75 billion valued in its dirt and structures.

Thomson Reuters had listed the lowest price target as $2.50. Now that has to come with an asterisk, because Sterne Agee’s Chuck Grom is not even confident in holding a $3.00 target.

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