Jefferies Offers Preview Of Wells Fargo's Investor Day

Wells Fargo & Co WFC is scheduled to host its Investor Day on May 24. Jefferies’ Ken Usdin maintained a Buy rating for the company, with a price target of $57. The analyst believes the Investor Day would have the usual optimism, although with “a dose of realism.”

“We expect an upbeat message about strategy, consumer health, and loan/dep. growth, but also expect realism about the environment and changes since the '14 meeting,” analyst Ken Usdin wrote.

Optimism

Management is likely to highlight the company’s strong operating performance and top-tier profitability, while focusing on recent market share gains. They are also likely to discuss Wells Fargo’s strong financial position.

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Usdin said that management would likely discuss new challenges that have emerged over the past year, which may result in a more conservative longer-term outlook. He added, “Similar to many peers, WFC’s EPS trajectory has some challenges to face ahead, including normalizing credit costs, a persistently flat yield curve, and pressure in certain fee income areas.”

Realism

The analyst expects management to lower its targeted ROA range to 1.2-1.5 percent, from 1.3-1.6 percent announced at its 2014 Investor Day. Given a lower equity/assets ratio, Wells Fargo could maintain its targeted ROE range of 12-15 percent.

Although profitability has declined recently, Wells Fargo has several options to offset the current pressures. “We expect mgmt. to discuss how it is controlling costs underneath its investment spending and we would look for a better understanding of how it could get the efficiency ratio away from the top-end of the 55%-59% range,” Usdin commented.

Management may provide more insight into its strategy to gain market share in areas such as card and wealth management as well as discuss plans to defend its top positions in auto and mortgage lending. “We also expect mgmt. will highlight loan and deposit growth opportunities across its myriad business lines and targeted areas for fee income growth,” the analyst added.