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J.C. Penney Gets a Markup

Shares climbed Thursday after JP Morgan upped its rating on the retailer to overweight from neutral

Will J.C. Penney (JCP) grow its earnings this year? JP Morgan thinks so and upgraded the department-store operator's stock to overweight from neutral on Jan. 18.

The Plano (Tex.)-based company has taken steps to grow its business in recent months such as introducing the cosmetics chain Sephora in five J.C. Penney stores in the third quarter. It's also planning to bring in a new lingerie brand Ambrielle this year, as well as the creation of two new lines with Liz Claiborne.

Among other things, JP Morgan analyst Charles Grom noted that the firm has heard of a J.C. Penney deal with Ralph Lauren in the works for an exclusive offering with a Spring 2008 launch.

At the same time J.C. Penney is making itself more efficient. Instead of taking around 50 weeks to design and deliver merchandise to its stores, J.C. Penney expects to take around 25 weeks. The company wants to react more quickly to fashion changes -- and also base its production on what sells.

To accomplish such goals, the company has already doubled its design team over the past two years. Its detailed plan includes choosing a vendor for new software, which Penney thinks will cut out the need for back and forth approvals between manufacturers and the company headquarters in Plano, Texas.

J.C. Penney already hiked its earnings guidance in fiscal year 2006 eight times. Grom is expecting to see more upward revisions in the coming year.

Investors were bullish too on Jan. 18 and bid up the stock nearly 5% to $83.58 per share on the New York Stock Exchange.

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