Jim Cramer Sends J.C. Penney Up, Wells Fargo Knocks It Down

Shares of J.C. Penney (NYSE: JCP) are on track to continue the third straight day of losses after a Wells Fargo downgrade.

This comes in spite of Jim Cramer's endorsement on Mad Money.

Drops on the previous two days were the result of profit taking and a financing update.

Monday night, Jim Cramer called the stock great for speculation, but warned investors to stay away - and the speculators responded. Shares were up about 1.5 percent following Cramer’s call. He said that shares will continue to rally as long as same store sales continue to rise, but that the company is far from making a profit, so investment is risky.

Wells Fargo downgraded the stock from Market Perform to Underperform, commenting that the recent 12 percent jump in share price is irrational. Further, analyst Paul Lejuez wrote, “JCP’s high level of debt likely leaves very little value left for equity holders, a concept which we believe is extremely important to understand for those that are intrigued by slightly better comps in Q1.”

Related: JC Penney First Quarter Conference Call Summary

Wells Fargo thinks the company is worth between $5 and $6 per share. This valuation is based on an EV/Sales multiple of 0.47, which is half the value of comparable companies. Difficulties with increasing traffic and the high amount of debt are justifications for the lower price target (40 percent below the current price).

Despite the series of down days, shares are still up 10 percent since the company announced its earnings last week. Without a positive catalyst, it is realistic that investors will continue profit taking, slowly weakening the stock.

Shares have given up 3.42 percent on the Wells Fargo downgrade Tuesday and traded at $9.04 at the time of publication.