KBW Upgrades Wells Fargo Despite Q2 Miss, Says Valuation 'Compelling'

Wells Fargo & Co WFC underperformed in its July 13 second-quarter earnings report, but Keefe, Bruyette & Woods saw enough positive signals in the print to raise EPS estimates for the bank. 

The Analyst

Analyst Brian Kleinhanzl upgraded Wells Fargo from Market Perform to Outperform and raised the price target from $57 to $63.

The Thesis

Wells Fargo "has become an expense save and capital return story," Kleinhanzl said in the upgrade note.

If the bank executes on expenses and capital return, it should account for nearly 80 percent of EPS growth from 2018 to 2020, with higher revenue "mostly offset" by higher provision expense, the analyst said.

The bank's valuation is compelling, as KBW's projections show the stock returning to best-in-class among money center peers by 2020, Kleinhanzl said. 

Wells Fargo's regulatory and governance risks have decreased, as the most recent stress test and CCAR exams show the Fed is not prone to be punitive to the bank from an enforcement perspective, the analyst said. The analyst raised 2018, 2019 and 2020 EPS estimates from $4.50, $5.20 and $5.60 to $4.54, $5.35 and $5.90, respectively.

Lower noninterest expenses and lower provision expenses are the main drivers of KBW's higher EPS estimate, Kleinhanzl said. 

The Price Action

Wells Fargo shares were up about 1.68 percent at the time of publication Monday. 

Related Links:

Back To Banks: More Financial Results In Ahead of Powell Testimony Later This Week

Round Two Of Bank Earnings Coming Up With Bank of America, Goldman Sachs And Morgan Stanley\

Photo by Ildar Sagdejev/Wikimedia. 

 

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorUpgradesPrice TargetAnalyst RatingsBrian KleinhanzlKeefe Bruyette & Woods
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!