J. C. Penney Company Inc's (NYSE: JCP) recent share-price rally could tempt the company into an equity offering that would improve its cash flow and debt ratio while cutting the company's expected 2014 loss per share.

"It could be on the horizon," Credit Suisse's Michael Exstein said in a note. But an offering would make further share-price gains "difficult in the near term," according to Exstein, who maintains a Neutral rating and $7 target.

Shares of the Plano, Texas-based retailer are up 20 percent in the past three months, even as department stores in general face a deep challenge from structural changes in shopping habits.

Despite recently improved results, the company continues to face questions about its earnings power despite significant progress in stabilizing its business, Exstein said.

Although the company has now posted two consecutive quarters of same-store sales growth. That's an impressive gain over 2012 and 2013, when same-store sales fell 25 percent and seven percent, respectively.

But "it will be difficult to sustain that growth, and it doesn't fully translate into earnings growth," according to Exstein.

The current quarter marks the last period of year-over-year comparisons following J C Penney's restoration of merchandising and promotional strategies that have driven recent improvements.

A further difficulty in Exstein's view: footwear, accessories and beauty products accounted for most sales growth at department stores. But J C Penney's offerings in the category are among the lightest of major department stores.

"It will be much more difficult to achieve sales growth beyond the recovery this year" unless the company boosts its offerings in the category," Exstein said.

As for earnings growth, the company faces a dilemma according to Exstein: it can't get a satisfactory return on its expenses without downsizing, yet the company is relying on its current store base to sustain current sales volume.

J C Penney shares closed Thursday at $10.77, down 2 percent.

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