Raymond James Upgrades Wells Fargo (WFC) Two-Notches to Outperform on Positive Catalysts

(Updated - November 24, 2020 9:11 AM EST)

Raymond James analyst David Long upgraded Wells Fargo & Company (NYSE: WFC) two-nothces to “Outperform” from “Underperform” on decreasing headwinds.

Long expects pretax pre-provision income (PTPPI) to go through in 2020 at $16 billion, then grow by 8.4% next year and 12.2% in 2022. As these headwinds decrease, Long expects profitability to improve.

“As regulatory issues gradually ease, we expect the bank to embark on a material long-term expense rationalization initiative in order to bring its efficiency more in-line with that of its peers. We believe its new CFO and his team are reviewing the bank's current expense base and are targeting cost savings goals for 2021,” Long said in a note sent to clients today.

“We expect Wells Fargo's credit performance during this credit cycle to perform better than its peers due to its large exposure to residential real estate loans, which account for 35% of its total loan portfolio (compared to peers at 23%), as home prices have held up well. Furthermore, its exposure to hotel (1.3% of loans) and entertainment (1.0%) are well below levels of its peers.”

Taking into the account a steep discount WFC stock has compared to tangible book value (TBV), Long believes Wells Fargo will look to resume buybacks as soon as Fed allows it (expected to happen by mid-2021).

Long, who set a price target of $32.00 per share on WFC, also made the following modeling adjustments.

“We are slightly increasing our NII forecast for an uptick to our NIM projections; we are reducing our loss provision expectations for lower net charge-offs; we are increasing our noninterest income outlook for higher mortgage banking revenue; we are increasing our operating expense projections to account for the improved revenue outlook.”

“We are raising our 2020 EPS estimate by $0.08 to $0.21, our 2021 estimate by $0.22 to $1.63, and our 2022 estimate by $0.18 to $2.78 to reflect the adjustments above,” concludes Long

For an analyst ratings summary and ratings history on Wells Fargo click here. For more ratings news on Wells Fargo click here.

Shares of Wells Fargo closed at $26.87 yesterday.

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