JC Penney soars, but it's too soon to declare victory

J.C. Penney shares were trading nearly 20 percent higher on Wednesday, a day after the department store said its same-store sales rose 3.7 percent during the crux of the holiday season.

But Wells Fargo analyst Paul Lejuez cautioned that investors shouldn't get ahead of themselves on the sales boost.

Although the company said that its comparable-store sales for the fourth quarter came in near the high end of its guidance—or between 2 percent and 4 percent growth—the retailer still has a long way to go in its turnaround.

"While this quarter represents an improvement over [the third quarter], and a step forward, it is by no means stellar given easy comparisons," Lejuez wrote in a note to investors. "[It's] certainly better than missing, but far from convincing that this is the start of a consistent trend."

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The analyst also pointed to concerns about the company's valuation. He said that in order for Penney's to achieve its goal of $1.2 billion in earnings in 2017, it would need to post comparable-store sales gains of at least 4 percent each quarter for the next three years. While that isn't impossible, its not likely given the company's volatile trends and the promotional environment, Lejuez said.

A JC Penney store in New York City.
Scott Mlyn | CNBC
A JC Penney store in New York City.

What's more, as the company gets farther into its recovery, it will lap more difficult comparisons.

"We believe the slow pace of its recovery to date and lack of investment spending will make it difficult for J.C. Penney to regain lost ground on its mid-tier peers," Lejuez said.

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In the fourth quarter last year, Penney's reported its first quarterly same-store sales gain since second quarter 2011. Since then, the metric has yet to dip back into the red, though it came in flat for the third quarter. For 2014, the company is expected to post its first full-year same-store sales gain since 2011.

"Our highest priority over the last year has been to restore profitable sales growth at JCPenney. This holiday season was instrumental in that effort—and our teams delivered," CEO Mike Ullman said, in a written statement. "We are proud of these results, and believe the work we are doing will fuel the continued growth of our business."

Marvin Ellison, formerly of Home Depot, will take over as the company's CEO in August.