Wells Fargo Upgraded At This Major Firm, Bank Is Steady Amid Uncertainty

• Wells Fargo & Co WFC shares are down 5 percent since July 9, having declined from around $58 to $50 in August.
• JP Morgan’s Vivek Juneja upgraded the rating on the company from Neutral to Overweight, while reducing the price target from $59.50 to $58.50.
• With an attractive yield and near-term growth prospects, the company is steady against the backdrop of uncertainty, Juneja said.

Analyst Vivek Juneja mentioned that markets would likely remain choppy due to uncertainty related to the economic outlook.

Juneja enumerated the reasons for the upgrade in rating:

1. Capital return is expected to rise in 2H15: This would be backed by increased share buybacks and an attractive dividend yield.
2. Higher net interest income: The company is likely to benefit in the near term from higher net interest income. Wells Fargo shifted some of its high liquid assets into securities in 2Q, expecting interest rates to be lower for longer. The company also acquired loan portfolios from GE Capital, and is likely to acquire more in 1Q16, with the recent purchase of rail car leases.
3. Track record: Wells Fargo has a solid long-term track record of growth, risk management, and profitability.
4. Business model: The company has a diversified business model and faces opportunities for growth in several businesses – credit cards, investment banking, merchant processing and treasury management.

Wells Fargo’s shares plunged 8.6 percent after the devaluation of the Chinese Yuan. This was in-line with the performance of other regionals. Juneja expects Wells Fargo’s stock to outperform peers, given the company’s “better than peer track record.”

In the report JP Morgan noted, “We are updating our December 2016 price target for Wells Fargo to $58.50 from $59.50 to reflect a reduction in EPS estimates as a result of delayed and lower Fed interest rate hikes and lower markets related revenues.”