Saying that J.C. Penney Co. Inc. (NYSE: JCP) has achieved a meaningful turnaround in the past seven quarters, Fitch Ratings on Thursday upgraded the company’s issuer default rating from CCC to B- with a stable outlook. The one-notch move keeps J.C. Penney’s bonds firmly in the non-investment grade range.

Using its recovery rating methodology, Fitch raised its ratings on the company’s senior secured bank credit facility and its secured term loan from B/RR1 to BB-/RR1 and the rating on senior unsecured notes and debentures from CCC/RR4 to B-/RR4. A recovery rating of RR1 indicates “outstanding recovery prospects (91% to 100%) in a distressed scenario.” According to the Fitch analysis, the liquidation value for J.C. Penney under a distressed scenario is approximately $5.6 billion.

Fitch expects the company to generate EBITDA of about $650 million in 2015 (adding back in a $40 million charge for stock-based compensation), more than double 2014 EBITDA of $277 million. The ratings agency explains:

Our expectations are based on 4% comparable store sales (comps) growth, gross margin of approximately 36%, and further selling, general and administrative (SG&A) reduction of approximately $120 million. The upgrade reflects increased confidence in J.C. Penney’s ability to improve EBITDA to the $800 million range in 2016 and move towards $1 billion in 2017.

Free cash flow is expected to be neutral in 2015, rising to $75 million in 2016 and nearly $200 million in 2017.

Fitch sees growth in online sales accounting for over 50% in comparable sales growth of 2% to 3% over the next two years. The not-so-good news is that store traffic trends “remain soft and industry sales are expected to continue to decline 2% annually as volume continues to shift to off-mall channels such as online, discount, and off-price retailers.”

J.C. Penney stock got a boost Thursday morning, up about 4% to $8.25, in a 52-week range of $5.90 to $11.30. The consensus price target on the stock is $9.50.

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