Wells Fargo Gets Double Upgrade as Raymond James Analyst Sees Positive Catalysts ‘Finally on the Horizon’

Long raised his rating on the stock to outperform, having been underperforming since December, and in the market before that. He launched his stock price target at $ 32, or 12.3% above current prices, after not having had a target before.

WFC stock,
+ 8.78%
rose 8.4% in afternoon trading, allowing it to close at the highest price since June 16. The rally punctuated the 88 components of the KBE exchange-traded fund of SPDR S&P Bank,
+ 4.85%
which were gaining ground on Tuesday. The banking ETF rebounded 4.5%.

Long said he doubled down on Wells Fargo as the effects of the account opening scandal, which had squeezed income and increased spending since it broke more than four years ago, began to wear off.

“With the likely worst in the past, we now believe that its pre-tax income before tax is at a low, its revenue is near a low, a multi-year expense rationalization initiative can finally be initiated and the Buyout activity may resume in the near future, ”Long wrote in a research note to clients.

Read also: New Wells Fargo CEO Says The Bank’s Problems Will Not Be Addressed Until 2021.

The bank last month reported third-quarter earnings that beat Wall Street expectations, shattering a three-quarter streak of hiccups, while net income has missed expectations for five consecutive quarters.

As investor interest in banks grows, Long said he believes Wells Fargo stock “will stand out”, given its discounted valuation relative to its peers. He said Wells stock was trading at around 82% of tangible book value (TBV) through Monday, while stock of JP Morgan Chase & Co., JPM,
+ 4.62%
traded 184% of TBV and Bank of America Corp. shares. BAC,
+ 5.80%
traded at 135% of the TBV.

Wells shares have fallen 47.0% year-to-date, while JP Morgan shares are down 12.4% and Bank of America shares are down 18.9%. Meanwhile, the bank ETF has fallen 13.4% this year and the S&P 500 SPX index,
+ 1.61%
rallied 12.5%.

“As regulatory pressures gradually ease, we expect the bank to embark on a major long-term expense rationalization initiative to further align its efficiency with that of its peers,” Long wrote. “We believe its new CFO and team are looking at the bank’s current spending base and aiming for cost reduction targets for 2021, which we hope to hear more about during its January conference call.”

Mike Santomassimo was appointed CFO in July to replace John Shrewsberry, who retired.

Wells Fargo is expected to release its fourth quarter results around Jan.15.