J.C. Penney (JCP) could be caught in the downdraft of its dying rival on the other end of the mall, and forced to close even more stores. 

"Our analysis suggests that Sears ( SHLD) revenue donation is providing a moderate near-term boost [to J.C. Penney] to sales and earnings ($54 million in revenue, and $0.03 in EPS). However, we believe that any further Sears store closings may increase the likelihood that J.C. Penney will have to accelerate the closure of lower-tier mall locations, adding meaningful medium-term revenue and EPS risk of about $150- 200 million and $0.09," wrote Credit Suisse analyst Christian Buss on Friday.
 
Buss rates J.C. Penney shares at an under-perform. 
 
The analysis is pretty simple to grasp.
 
As a Sears store closes, it tends to reduce foot traffic in -- and around -- the mall. That means fewer shoppers visiting the J.C. Penney that's still open in the mall or down the road. According to Buss' analysis, when an anchor store in a highly distressed mall closes, about 30% of these malls go onto close. Boss identifies 103 at risk malls where Sears could close, with 53 J.C. Penney stores within a mile of these malls that may be forced to shutter its doors due to another plunge in foot traffic. 
 
A J.C. Penney store.
A J.C. Penney store.
 
Says Buss, "If these mall locations were to close, and J.C. Penney were forced to close its co-located stores over time as a result, this could create a $177 million revenue headwind for J.C. Penney. With an incremental margin assumption of 15% on this revenue (in line with our short-term scenario), this would suggest a -$27 million EBITDA impact and a -$0.09 impact on earnings."
 
J.C. Penney is in the process of closing 138 stores stores by the end of the summer. The store closures represent 13% to 14% of the company's current store base and less than 5% of annual sales. They have a negligible impact on net income. J.C. Penney said same-store sales at the locations were "significantly below" the remaining store base and operate at a much higher expense rate due to poor productivity.
 
Meanwhile, struggling Sears just said it will close 66 more stores this year. The company was already in the middle of closing 150 under-performing Sears and Kmart stores to preserve cash.
 
JCP shares rose 0.8% to $4.88 early Friday morning.
 
Visit here for the latest business headlines.
 
Editors' pick: Originally published June 16.

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