Morgan Stanley analyst Kimberly Greenberger said J.C. Penney Co (JCP - Get Report) stock could drop to as low as $1 in a bear case, implying room for a 74% downside for the stock from its midday Monday price of $3.85 per share.

Greenberger said sequential improvements for the retailer weren't enough to hold up soft fundamentals exhibited in weak second quarter earnings reported Friday. Morgan Stanley rates J.C. Penny "equal weight" with a price target of $4, bull case of $6 and bear case of $1 per share.

Morgan Stanley's bear scenario has J.C. Penney's structural headwinds accelerating as Ebitda declines at a rapid pace. If this happens, it's possible there will be about a 3% decline in same store sales by 2018 as gross margins fall to the 35% range.

Greenberg's base case has comp sales falling as well, but the declines are offset by shrinking SG&A expenses. If those costs remain high, J.C. Penney could face the bear case reality.

J.C. Penney stock was down nearly 2% midday Monday and over 53% so far this year.

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