UPDATE: Compass Point Reiterates on Wells Fargo & Co. Following 1Q14 Release
In a report published Monday, Compass Point analyst Kevin Barker reiterated a Neutral rating on Wells Fargo & Co. (NYSE: WFC), and raised the price target from $47.00 to $49.00.
In the report, Compass Point noted, “We maintain our Neutral rating and increase our price target on shares of WFC to $49 from $47 following the release of 1Q14 earnings. Our higher price target is a reflection of slightly higher FY15 EPS primarily due to slightly higher loan growth assumptions. Despite lower NIM and industry-wide headwinds on mortgage banking income, WFC reported another quarter over quarter increase in EPS, primarily driven by a lower than effective tax rate and higher gains on debt and equity investments.
"The $0.08/share tax benefit this quarter will not be recurring, but we will likely see elevated equity investment returns for the foreseeable future given the strong performance of private equity investments and robust IPO market. If we were to strip out the returns from equity investments, core PPNR came in at $7.3B compared to our $7.9B estimate and leads us to question whether the core earnings capacity of WFC can continue over the long run.
"In the near term, we think the is answer is yes, but eventually the pressure from a competitive mortgage market, low interest rates and significant excess liquidity will make it difficult to grow EPS.”
Wells Fargo & Co. closed on Friday at $48.08.
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