UPDATE: JP Morgan Upgrades Fred's to Overweight (FRED)

JP Morgan is out with its report today on Fred's (NASDAQ: FRED), upgrading FRED from Neutral to Overweight.

In a note to clients, JP Morgan writes, "We upgrade shares of Fred's to Overweight from Neutral and raise our December 2011 price target to $17 from $12. Investors could win in two ways with Fred's, in our view. First, Fred's has fundamentally underperformed peers in recent years, and we see opportunity for productivity improvement as the company is in the early innings of a turnaround. Second, on the heels of current activity in the sector, we believe that, with a nearly debt free balance sheet, an ideal 18,000-sq.-ft. box size, store growth potential with only 670 locations, and stock underperformance YTD (down 6.8% vs. SPX up 5.6%), Fred's screens well as an LBO candidate."

At the time of posting, shares of FRED were trading pre-market at $13.75, up 7.25% from Tuesday's close.