J.C. Penney Company, Inc. (NYSE:JCP) has had plenty of ups and downs lately, but at least one firm is starting to turn a bit more positive on the retail chain. Analysts at R.W. Pressprich & Co. have initiated coverage on the company’s common shares and senior unsecured notes. They now rate J.C. Penney shares as Market Perform, while they have a Buy rating on the company’s senior unsecured notes. Interestingly enough, analysts at Imperial Capital also like J.C. Penney’s notes better than its equity.

J.C. Penney

J.C. Penney is turning things around

Analyst Steven Ruggiero believes J.C. Penney Company, Inc. (NYSE:JCP)’s credit story will look more favorable sometime before its next major set of senior unsecured notes mature late in 2015. His base case posits that the retail chain will begin generating positive free cash flow no later than sometime in the 2016 calendar year.

He also assumes the company will continue having enough financial flexibility and be able to source funding however it needs to do.

J.C. Penney’s notes look good

Ruggiero rates the retail chain’s unsecured notes as a Buy because they have a high yield currently paired with an “attractive two-year total return profile” if J.C. Penney Company, Inc. (NYSE:JCP) meets their expectations. He especially likes the $200 million 6 7/8 percent MTNs which are due on Oct. 15, 2015.

The analyst said coupon payments which are made through 2015 create the possibility for an attractive net cost for investors. He estimates that J.C. Penney’s senior unsecured notes may have “an expected mean exit value” of about 50 percent of their face value. He estimates that their expected present value range is 33 to 49 percent at the time of bankruptcy.

J.C. Penney’s equities not as attractive

He has a Market Perform rating with a Call option on the company’s shares because he believes it has the liquidity needed and also no near term maturities. He thinks this will buy the struggling department store chain enough time to complete a turnaround, which he thinks has begun.

The analyst said if J.C. Penney Company, Inc. (NYSE:JCP) falls short of his expectations, it will be able issue more unsecured debt, common shares, and / or securities which are convertible into shares.