The stock price of J.C. Penney Company, Inc. (NYSE:JCP) declined almost 4% to $8.99 per share after analysts at Wells Fargo downgraded their rating to Underperform from Market Perform, citing the reason that it is overvalued.

J.C. Penney Company JCP

Since J.C. Penney Company, Inc. (NYSE:JCP) reported financial performance for the first quarter that was better than expected with a 6.2% increase in same-store sales, investors have been bullish on the stock. The company’s shares surged 12% after its earnings report.

In a note to investors, Wells Fargo analysts acknowledged the fact that J.C. Penney Company, Inc. (NYSE:JCP) is “making progress,” but they pointed out that the 12% increase in the stock price of the retailer post-earnings, compared with just 1% for the S&P 500 (INDEXSP:.INX), shows that the market “may not be fully appreciating what is priced into the stock right now.”

Very little value for equity holders

“We are revisiting our “Wealth Transfer” thesis, meaning that J.C. Penney Company, Inc. (NYSE: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,” according to the analysts.

The Wells Fargo analysts said J.C. Penney Company, Inc. (NYSE:JCP) needs to earn $1.1 billion in EBITDA by 2016 to justify its current enterprise value. According to them, it is “nearly impossible” for the retailer to achieve such a target. The analysts estimated that J.C. Penney’s stock is worth around $5 to $6 per share.

Morgan Stanley maintains Underweight rating

Last Friday, analysts at Morgan Stanley maintained their Underweight rating with a $4 price target for shares of J.C. Penney Company, Inc. (NYSE:JCP). The analysts commented, “JCP 1Q loss better than feared: 6.2% comps handily beat 3.8% consensus and 4% MSe. Sales improved sequentially in the quarter and positive traffic y/y in April – the first time in 30 months – was encouraging. 33.1% gross margin missed consensus by 10 bps but expense was once again well controlled and SG&A dollars fell $69M, or 6.4% y/y.”

Sterne Agee still uncertain with J.C. Penney’s turnaround

On the other hand, analysts at Sterne Agee reiterated their Neutral rating for the stock and expressed that, “we still have our reservations on the turnaround” of J.C.Penney Company, Inc. (NYSE:JCP).