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JC Penney rises as analyst lifts rating to 'Hold'

NEW YORK (AP) -- Shares of J.C. Penney rose on Wednesday as an analyst said that the struggling retailer's return to discounting should drive traffic back into stores and lead to more sales.

THE SPARK: Rick Snyder of Maxim Group LLC lifted J.C. Penney Co. to "Hold" from "Sell" and lifted its price target to $16.50 from $10. The upgrade comes one day after the department store operator announced that its first-quarter revenue will likely fall 16 percent and pointed a finger at prior leadership for part of that shortfall.

THE BACKGROUND: In April J.C. Penney fired CEO Ron Johnson after 17 months on the job and said that it was bringing back his predecessor, Mike Ullman. Johnson's tenure included ambitious changes such as getting rid of most sales and bringing in hip, new brands. The strategy was designed to attract younger, wealthier shoppers in a bid to reinvent the stodgy retailer, but it alienated Penney's loyal customers and caused sales to plummet.

Last week the Plano, Texas company released an ad on its YouTube and Facebook pages. The ad was a public "mea culpa" that acknowledged J.C. Penney's missteps and asked customers to return to its stores.

THE ANALYSIS: Snyder said in a client note that J.C. Penney may have lost some of its customers forever when it did away with discounting, but he believes that some of them will likely return now that coupons and discounting are going back into effect.

"Initially this is likely to hit margins as customers 'cherry pick' the discounts, but consumers are likely to eventually return in sufficient numbers to return gross margin to historical levels," Snyder wrote.

J.C. Penney Co. Inc. does not comment on analyst reports.

SHARE ACTION: J.C. Penney's stock gained $1.32, or 8.1 percent, to $17.72 in afternoon trading. The shares have traded between $13.55 and $34.99 over the last year. The stock is down just over 47 percent in the past year.