Shares of J.C. Penney edged higher Friday morning, after the department store operator approved a $400 million share buyback program and raised its dividend.
After the market closed on Thursday, the company said its new buyback program would offset new shares issued in connection with employee stock options. The program will be completed by the end of its fiscal year ended January 2008.
J.C. Penney also raised its quarterly dividend 11 percent to 20 cents per share. The dividend is payable May 1 to shareholders of record April 10.
Morgan Stanley analyst Michelle Clark said she viewed the buyback as a "positive signal" from the company ahead of its annual investor meeting on April 17 and 18.
"With J.C. Penney shares underperforming the department store group average by 3.5 percent year-to-date (up 5.1 percent), the shares are undervalued, in our view, and announcements made at the investor meeting...should serve as the next major catalyst to take shares higher," she wrote in a note to investors on Friday.
In Clark's view, investor fears about exposure to lower-income consumers in the face of higher gas prices and a slowing housing market are "overblown."
"Continued merchandising strength, higher sales productivity, and accelerated square-footage growth should help drive at least mid-single digit growth in Penney's top-line this year.
Clark, who rates J.C. Penney "Overweight," kept J.C. Penney a "top pick" and said it has the ability to drive margins higher over the next few years.
Shares rose 89 cents to $82.16 during morning trading on the New York Stock Exchange.