UPDATE 1-Morgan Stanley sees strong margins at J.C. Penney
June 29 (Reuters) - Morgan Stanley upgraded J.C. Penney Co Inc (JCP.N: Quotazione) to "overweight" from "equal-weight," and said the retailer was "the most likely candidate" in the department store group to outperform current gross margin expectations in the second half of 2009 and beyond.
The brokerage, which also prefers the stock from a valuation standpoint, said the department store operator's margins would benefit more from a fall in apparel costs than its peers and also from sales of private-label merchandise.
Private-label products are those on which retailers put their own labels on what are often lower-priced goods made for them by vendors. They tend to cost less than brand-name products, they also tend to carry higher margins for retailers, helping profits.
J.C. Penney ended the first quarter of 2009 with "the most favorable" sales to inventory position in the group, Morgan Stanley added.
Morgan Stanley said it expects the tight alignment between sales and inventories to continue through the remainder of the year as the retailer has bought conservatively for the back half of 2009.
"As the consumer environment improves, J.C. Penney's merchandising, sourcing and real estate strengths will show through," the brokerage said.
J.C. Penney shares were up 3 percent, or 87 cents, at $29.24 Monday morning on the New York Stock Exchange. (Reporting by Dhanya Skariachan in Bangalore; Editing by Deepak Kannan)
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