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Shares of

J.C. Penney

(JCP) - Get J. C. Penney Company, Inc. Report

were moving higher Wednesday after the company was upgraded by Piper Jaffray, which was impressed with the department-store chain's improvement in all areas of its businesses in the latest quarter.

Analyst Jeffrey Klinefelter is more confident in J.C. Penney's turnaround story after the company's

better-than-expected first-quarter earnings report Tuesday, and he upped his investment rating on the company to outperform from market perform. The analyst also set a $46 price target, which is based on his fiscal-year 2006 earnings estimate of $2.31 a share vs. consensus for $2.78 a share.

Shares of J.C. Penney were recently up 19 cents, or 0.6%, at $33.90 after adding about 2% earlier in the session.

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"Having now witnessed four quarters in a row of significant profit expansion, we now believe that management's turnaround strategy will succeed and that we will see operating profit in the range of 6% to 8% next year," Klinefelter wrote in a Wednesday research note.

Pricing power and higher demand for apparel should boost the company's future bottom line, he said. In addition, the company's sale of its Eckerd drugstore division for about a 75% premium over what the company paid for it also has positive implications for the company's financial position.

The analyst expects J.C. Penney to grow its earnings mostly via expense management next year, with more than $200 million in cost saving plans in the process of being implemented. Other ways he sees the department store chain improving business is through store appearance improvements and centralized checkouts. J.C. Penney's increase in off-mall stores also will help.

Strong categories in the next year should be jewelry, women's career clothing and home accessories. As a result, the company's shares, said Klinefelter, could trade at a premium to current levels.

Share price appreciation should be achievable via two channels, Klinefelter said. One is the company's history of beating analysts' earnings estimates by at least 2 cents a share in each of the last seven quarters. In addition, the analyst expects that J.C. Penney will repurchase about 70 million shares in the coming year.

The analyst expects J.C. Penney to earn 7 cents a share in the second quarter and $1.88 a share for the full year. Consensus is for 6 cents a share in the quarter and $1.97 a share for the year.

Piper Jaffray does investment banking for J.C. Penney.