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Zale shares rise as analysts initiate with 'Buy'

NEW YORK (AP) -- Shares of Zale Corp. rose on Friday, after an analyst said the jewelry seller's results should continue to improve and initiated coverage with a "Buy" rating.

THE SPARK: Citi Investment Research analyst Oliver Chen said in a note to investors that Zale is making a comeback, increasing prices, stocking more products customers want and giving its store employees more training.

THE BIG PICTURE: After suffering during and after the recession as consumers pulled back on spending on big-ticket items like jewelry, Zale Corp. has cut costs and focused on improving its range of products. In August, the company predicted that it will return to annual profitability in the next year, at the same time it posted a narrower fiscal fourth-quarter loss, helped by higher demand at its U.S. fine jewelry stores.

THE ANALYSIS: Chen started coverage on the company with a "Buy" rating and a $9 price target. He said he expects the company will gain share against mom-and-pop jewelers due to 90 percent brand awareness with national ads and a fragmented industry structure. The Dallas-based chain operates 1,780 locations in North America and an online store.

"Buy an American comeback at 'America's Diamond Store,' " he wrote, citing Zale's tagline.

SHARE ACTION: Shares rose 43 cents, or 6.5 percent, to $7.06 during midday trading. The stock had been up about 85 percent since the beginning of the year.