Retail

JC Penney stock surges, Macy's hits new high

A pair of department store upgrades drove Macy's and J.C. Penney shares higher on Tuesday, but while the bullish attitudes were aimed at the same sector, they gave differing opinions on where consumers' dollars are headed.

Citi upgraded J.C. Penney stock to "buy" from "neutral," based on its conviction that the low-price department store chain can achieve positive same-store sales in the high mid-single-digit range going forward. Meanwhile, Wells Fargo upgraded Macy's to "outperform" from "market weight," citing among other factors that it is winning the battle against competitors such as Penney's.

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The Macy's flagship store in New York.
Peter Foley | Bloomberg | Getty Images

"In our view, J.C. Penney is not taking substantial fashion risk but just going back to what worked before," said Citi analyst Oliver Chen. "We acknowledge that J.C. Penney is early in this go-forward phase, but we like the risk/reward given our conviction that just making basic changes will support guidance for growth in 2014."

Among these changes are re-merchandising the struggling home goods department and repositioning its kids offerings, Chen said. Together, these two categories make up about one-quarter of the retailer's assortment. The store's return to its traditional private-label focus—which was downplayed under former CEO Ron Johnson—is also expected the return to historic levels, and should drive sales, Chen said.

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Investors have rewarded the discount department store chain for its fourth-quarter earnings performance, sending its shares about 55 percent higher since it posted its first quarterly same-store sales gain in more than two years late last month. Since its report, Standard & Poor's raised Penney's CCC+ credit rating to "stable" from "negative," citing modest improvements.

I would stay away from JCP: Expert
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I would stay away from JCP: Expert

J.C. Penney's gain Macy's loss?

Separately, Wells Fargo on Tuesday raised its price target on competitor Macy's to a range of $66 to $70, from between $54 and $58. Analyst Paul Lejuez said that the retailer's fourth-quarter same-store sales growth of 1.4 percent—which was achieved with a relatively consistent gross margin—is proof that the company is winning the battle among mid-tier department store chains such as Penney's and Kohl's.

"Though difficult to quantify, we believe Macy's has benefited from J.C. Penney's massive share loss in the last two years, as the J.C. Penney customer overlaps with the lower end of the Macy's customer demographic," Lejuez said. "Although J.C. Penney seems to have stabilized from a comp perspective, we do not believe J.C. Penney is in a position to take back market share anytime soon."

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Lejuez said that Macy's reputation for having big sales has driven bargain-seeking customers to its stores, and its assortment of popular brands—which include Tommy Hilfiger and Michael Kors—is also a major reason for its lead.

"The momentum and mind share the company has gained makes us believe it will not so easily be reversed," Lejuez said. "Their lead is likely too large."

Macy's shares reached an all-time high near $60 after the upgrade.

—By CNBC's Krystina Gustafson. Follow her on Twitter @KrystinaGustafs.