Wells Fargo Spikes 8% As Raymond James Upgrades To Buy; Stock Down 47% YTD

Wells Fargo (WFC), closed 8% higher on Tuesday after Raymond James turned bullish on its stock with a price target of $32 (11.9% upside potential). Raymond James upgraded Wells Fargo to a Buy from Sell citing its discounted valuation compared to its peers.

Raymond James analyst David Long said “With the worst likely in the past, we now believe that its pretax pre-provision income has troughed, revenue is nearing a bottom, a multi-year expense rationalization initiative can finally be taken on, and repurchase activity can return in the near future. As investor interest in the banks increases, we believe Wells shares will stand out given its discounted valuation to peers at only 82% of TBV [tangible book value] (JPM trades at 184% and BAC at 135% of TBV).”

Long added that “we believe the bank’s pretax pre-provision income has troughed and revenue will soon follow. Additionally, as regulatory issues begin to ease, we believe expense rationalization can become a part of the Wells story, allowing the bank to begin to enhance its profitability.”  (See WFC stock analysis on TipRanks)

Wells Fargo recently reported weaker-than-expected 3Q earnings of $0.42 per share, compared to analysts’ expectations of $0.44 per share. The bank’s top-line fell 14% to $18.9 billion, reflecting a 19% year-over-year decline in net interest income. However, its revenues came ahead of the Street’s estimates of $18 billion.

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 7 Buys, 6 Holds and 1 Sell. The average price target stands at $29.08 and implies upside potential of about 1.6% to current levels. Shares have dropped by 46.8% year-to-date.

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