Citigroup Smith Barney raised

J.C. Penney's

(JCP) - Get Report

investment rating based on the belief that the company is working to turn around its pharmacy business and improve its department stores and catalog divisions.

Analyst Deborah Weinswig believes the company sees the potential for its pharmacy chain, Eckerd, to be acquired or spun off, and as such, is working to improve the operation.

Enhanced merchandising and advertising, along with recent technology initiatives, have led to sales and earnings momentum at J.C. Penney's department stores, she said.

As a result, Weinswig upgraded shares of the retailer to buy from hold and lifted its target price to $26 from $24.

"We believe that the Eckerd division stands obtrusively in the way of

Chief Executive Allen Questrom achieving complete success in the turnaround of J.C. Penney as a whole," she wrote in a research note.

The analyst believes a positive update from management will surface in the next two weeks regarding the Eckerd chain, and she also expects a decision by the end of the year on the overall future of the drugstore.

Weinswig expects earnings of $1.25 a share in 2004 and $1.62 a share in 2005. Analysts' consensus is for a profit of $1.26 a share in 2004 and $1.56 a share in 2005.

Shares of J.C. Penney were up 80 cents, or 3.7%, at $22.46 in recent trading.