THE SPARK: Oppenheimer analysts Brian Nagel and Rupesh Parikh reiterated a "Buy" rating on the company Monday, saying that traffic in stores in the final weekend before Christmas was strong. That made them them more optimistic that the company's new approach to promotions will help it through the holidays and into 2013.
THE BIG PICTURE: J.C. Penney is in the midst of a major turnaround effort.
The company's sales have declined in four of the last five years. Under its new CEO Ron Johnson, J.C. Penney has revamped its merchandise, look of its stores and its pricing.
J.C. Penney took a risk in February when it moved away from the big markdowns, sales and other promotions it had traditionally used, in favor of permanently lowered prices on all items, plus month-long sales on select items and periodic clearance events throughout the year.
Customers did not embrace the change and sales fell further. After the retailer recognized that the new system was was unappealing to customers, it brought some sales and other promotions back six months later to try and draw shoppers.
THE ANALYSIS: "We are increasingly optimistic that the more price promotional stance that J.C. Penney is now assuming will allow the chain to make the most of a challenging holiday selling season and position it well to re-accelerate its aggressive turnaround strategy in 2013," the analysts wrote in a research note.
The retailer's aggressive holiday promotions appear to be helping out its traffic, sales and ability to clear out inventory.
The analysts said that its new hybrid promotional position should prove to bring more steady traffic and cash flow in the future.
"J.C. Penney is undergoing one of the most significant transformations in the history of retail," the analysts said. "Near-term challenges are likely to persist, but we believe a much more profitable company will emerge over time."
SHARE ACTION: J.C. Penney Co. Inc. at one point led all gainers on the Stander & Poor's 500 index. In midday trading, shares rose 25 cents to $19.84 even as the broader market fell. Shares are still down more than 50 percent from their 52-week peak in February.