Morgan Stanley Upgrades Wells Fargo As 'Opportunity Knocks'

Morgan Stanley’s Betsy L. Graseck believes Wells Fargo & Co WFC offers among the best values in its group and the S&P 1500. Although there could be some volatility ahead, given that headline risks persist, the stock has rarely been this inexpensive and presents a buying opportunity.

Graseck upgraded the rating on the company from Equal-weight to Overweight, while lowering the price target from $56 to $53.

Related Link: A Call For Management Pay 'Clawbacks' At Wells Fargo

Buying Opportunity

The stock has declined 8 percent over the last week trading days, following the announcement on September 8 of a lawsuit settlement with the city of Los Angeles and the fine paid.

“We expect any additional fines, which we believe is a low probability, would be a one-time cost that WFC could handle with its excess capital and would not impair its ability to pay its dividend,” Graseck mentioned.

Highest Dividend Yield

Wells Fargo’s recent share price underperformance, along with its dividend payout ratio of 40 percent, drives a dividend yield of 3.5 percent, which the analyst believes is best in class.

“Yes, we could see some more volatility ahead as headline risk persists, particularly around CEO John Stumpf's testimony before the Senate Banking Committee on Sept. 20 and other regulatory investigations, but we do not think any of this puts the dividend at risk,” the analyst elaborated.

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