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Wells Fargo’s Stock Is Valuable Compared to Its Peers

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Analysts expect upside in the stock

In 2015, Wells Fargo (WFC) shares slightly outperformed the financial sector. The Financial Select Sector SPDR ETF (XLF) represents the financial sector. In 2015, it lost 3.6%. In comparison, Wells Fargo generated returns of -1.7%.

On January 7, 2016, the stock closed at $50.57. With an average consensus price target of $59.24 and a median target estimate of $60, it’s still at a discount of 16% to analysts’ expectations. This suggests that Wall Street is upbeat about the stock despite the global turmoil. This trend is also evident if we look at the ratings on the stock. Among the 38 analysts following the stock, 24 assigned “buy” ratings. Wells Fargo shares received three “sell” ratings and 11 “hold” ratings. If the earnings in 4Q15 beat analysts’ expectations, we could see some of the “hold” ratings converted into more “buy” ratings.

However, the estimated EPS (earnings per share) was revised downwards by research brokerages in six instances in the past four weeks. It was revised upward in four instances.

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Valuations

The company’s shares trade at a price-to-book multiple of 1.5x. The average price-to-book multiple for banks in XLF is 1.07x. Wells Fargo’s stock is the most expensive on a price-to-book basis among large-cap banks in XLF. The only banks with higher price-to-book ratios than Wells Fargo are Northern Trust (NTRS) and US Bancorp (USB). They have price-to-book multiples of 1.84x and 1.76x, respectively.

Large-cap peers like Citigroup (C), J.P. Morgan, and Goldman Sachs (GS) are trading at price-to-book multiples of 0.68x, 1.01x, and 0.93x, respectively.

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