Raymond James is the latest firm to endorse Wells Fargo, raising its rating on the stock to Outperform from Underperform.
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The siren call for Wells Fargo bulls continues as Wall Street analysts increasingly warm to the bank.
Raymond James is the latest firm to endorse Wells Fargo (ticker: WFC), raising its rating on the stock to Outperform from Underperform. It sees shares going to $32 a piece, marking a 13% jump from Tuesday’s midday trading price. Roughly half of the analysts surveyed by FactSet now rate the bank the equivalent of a Buy.
Bullish analysts generally believe that much of the fallout from the bank’s fake-accounts scandal, details of which began to emerge four years ago, is in the rearview mirror. While the scandal—and the $2 trillion asset cap the Federal Reserve levied on the bank in response to it—have weighed on Wells Fargo’s performance, analysts expect that it will soon rebound.
And given that all banks are under pressure this year due to the economic impact of the coronavirus pandemic, Wells Fargo, which has been among the weakest of the large banks, has the most to gain, analysts say. Wells Fargo shares are down 47% this year while the KBW Bank Index is off by 16%. The bank trades at roughly 0.8 times tangible book value, lagging its peer average of 1.4.
There are several catalysts for Wells Fargo’s expected outperformance, according to Raymond James’ analysts. They expect that pretax preprovision income bottomed in 2020 and that it can grow 8.4% in 2021 and 12.2% in the following year. Wells Fargo will also benefit from expense cuts, with some cost savings expected to be realized next year.
Before the scandal, the bank was one of the more efficiently run banks, with an efficiency ratio in the high 50s, but in recent years the ratio has worsened and stands at 78.2% for the first three quarters of this year, Raymond James’ David Long wrote Tuesday.
Wells Fargo is well positioned for credit concerns, Long writes, given that more than a third of its loan book is in residential real estate loans, which have held up well as home prices rise. Its exposure to hotels and entertainment—two segments that have suffered during the pandemic—is below peers.
Finally, while all banks are currently barred from repurchasing their shares, Wells Fargo is “uniquely positioned” to benefit when buybacks resume, given its current trading discount.
“As investor interest in the banks increases, we believe Wells shares will stand out,” Long wrote.
Wells Fargo shares were climbing 8.5%, at $28.53, in recent trading, while the KBW Bank index was up 4.7%. The S&P 500 was up 1.5%.
Write to Carleton English at [email protected]
