How Analysts View Wells Fargo after Disappointing 2Q Performance



Analyst recommendations

Currently, Wells Fargo (WFC) trades at a premium to its peers in the banking space. Its book value has grown twice that of J.P. Morgan (JPM) and ten times that of Bank of America (BAC) in the past ten years. It has been one of the most profitable banks in America, generating 1.3% return on assets in 2015.

Twenty analysts (or 54%) have given Wells Fargo a “buy” rating, and twelve (or 32%) have rated it a “hold.” The stock has received five (or 13%) “sell” ratings. As you can see in above graph, consensus ratings for Wells Fargo have declined from 4.2 earlier in the year to 3.8 currently. This indicates that analysts are turning less bullish on Wells Fargo.

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Target price and upside potential

Wells Fargo has a consensus target price of $53.20 for the next 12-month period, implying a return potential of 9%. FBR Capital Markets and Barclays (BCS), with price targets of $63 and $61, respectively, are most bullish on Wells Fargo. This implies a one-year return potential of 29% and 25%, respectively, from its closing price of $48.68. Nomura (N), Credit Suisse (CS), and Barlcays (BCS) are also bullish on Wells Fargo.

On the flip side, Société Générale and UBS have assigned one-year price targets of $44 and $45, respectively, the company’s lowest. This implies returns of -9.6% and -7.6%, respectively, for the next one year.

2Q16 earnings

Wells Fargo has delivered consistent financial performance for the past few quarters, and so expectations were high. Its low exposure to risky investment banking and trading businesses meant it’s less impacted by global volatility. However, its second-quarter earnings failed to impress investors.

Investors looking for ETF exposure to Wells Fargo could invest in the iShares US Financial Services ETF (IYG) or the SPDR Financial Select Sector ETF (XLF).


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