Bargain Hunter Wells Fargo Suddenly A Bargain

• Wells Fargo & Co WFC has seen an over 10 percent decline in its share price in the past month.
• Sandler O’Neill’s R. Scott Siefers has upgraded Wells Fargo from Hold to Buy, with a price target of $59.
• Siefers believes that the recent pullback offers an attractive entry point for long-term investors, given the company’s track record, robust profitability and impressive management.

“WFC has been positioning itself better to capture opportunities irrespective of the rate environment,” Siefers stated, while adding, “Duration extension and liquidity deployment should help support the NIM, and a more vigorous cost focus should help to ensure that more revenues drop to the bottom line.”

According to the Sandler O’Neill report, with rates expected to move up, albeit very gradually, the company is looking to drive earnings while self-directing its future to a greater degree. In addition, the Q2 results suggest that Wells Fargo is “more willing to defend the margin.”

“In the 2Q, for example, WFC realized higher income from interest rate swaps used to convert a portion of its floating rate commercial loans to fixed rate as it added duration to the balance sheet,” the report explained.

This strategy is expected to help narrow the gap between what the company is capable of earnings “in a more accommodating rate environment” and what Wells Fargo is able to earn before such an environment occurs.

In addition, Siefers believes that the company is “in the midst of a program to make sure it is getting the best “bang for its buck” on expenses,” with the initiation of a multi-year cost efficiency program.

There could be a risk of the Fed holding on to the rates at the current levels, although Siefers believes that the company has “sufficient earnings diversity to weather any additional uncertainty.”