By  on June 30, 2009

J.C. Penney Co. Inc. got a vote of confidence from Wall Street Monday and its second upgrade in less than a week, based in part on the strength of the retailer’s production network.

But the company’s stock only mildly outpaced the market, rising 1.8 percent to $28.89 as the S&P Retail Index inched up 0.6 percent, or 2.02 points, to 324.91. The Dow Jones Industrial Average rose 1.1 percent, or 90.99 points, to 8,529.38.

Morgan Stanley analyst Michelle Clark boosted her view on Penney’s shares to “overweight” from “equal-weight” based on the current value of the stock and the company’s opportunity to use its sourcing abilities and private label brands to beat gross margin expectations.

“What’s key to investing in the space today is to identify retailers that can beat on gross margin,” Clark wrote in a research note.

Apparel import costs are down about 3 percent so far this year and could decline 5 to 7 percent in the second half, said Clark, noting Penney’s would see a larger benefit from this than its competitors. About 45 percent of the company’s merchandise is sourced directly, she said.

Last Thursday, J.P. Morgan analyst Charles Grom upped the company’s stock to “overweight” from “neutral” based on lower costs and better-than-planned sales, among other factors.

Later that day, Penney’s said Ken Hicks, its president and chief merchandising officer, resigned to become chief executive officer of Foot Locker Inc. Grom stood by the upgrade and said Penney’s had plenty of executive bench strength, even though Hicks’ departure was a loss.

Among the other retail gainers on Monday were Chico’s FAS Inc., up 4.5 percent to $9.51; Macy’s Inc., 2.3 percent to $11.94, and Saks Inc., 3 percent to $4.44. European stocks rose, with the FTSE 100 up 1.3 percent and the CAC 40 ahead 2 percent, but Asian markets lost steam as the Nikkei 225 fell 1 percent and the Hang Seng Index dipped 0.4 percent.

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