Analysts Divided On Outlook For Wells Fargo Shares

April 15, 2015

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Wells Fargo & Co (NYSE: WFC)’s first-quarter earnings miss on a narrowing net interest margin and slow loan growth left analysts with divided opinions as the smoke cleared Wednesday.

Shares traded recently at $54.59, up 0.74 percent.

“It was a ‘blah’ quarter,” said Oppenheimer’s Christopher Kowtowski, who nonetheless noted that the company remains a profit leader among “regional bank-type businesses.”

Kowtowski maintained a Market Perform rating on Wells Fargo and said the shares are “modestly undervalued.”

The company missed expectations by about a penny, on earnings of $1.07 a share, including a tax benefit of about $0.10 a share. Wall Street expected $0.98. A decline in quarterly profits was the first in five years, while its net interest margin narrowed.

Jefferies’ Kenneth Usdin maintained a Buy rating and $60 target, but said provisions for loan losses could hold earnings growth in check.

Much of Wells Fargo’s recent growth in lending has stemmed from acquisitions rather than from organically generated business, according to BMO’s James Fotheringham.

The company will acquire $9 billion in commercial loans from GE Capital and arrange $4 billion in related financing for Blackstone Group.

Citing the company’s growing cash, Fotheringham expects Wells Fargo will make similar deals later this year and in 2016.

Fotheringham rates Wells Fargo Underperform with a $53 target, and said investors should own the stock as a hedge against holdings in Citigroup (NYSE: C), which may prove more volatile.

Strong recent deposit growth parked in cash rather than deployed for lending partly explained a narrower net interest margin, according to Bank of America’s Erika Najarian.

“But we don’t think investors fully appreciate what this deposit growth will mean” if interest rates tick higher, Najarian said.

The growth was driven by consumer and small business accounts, which Najarian said will prove “stickier” than corporate accounts in a rising rate environment.

Najarian maintained a Buy rating and $60 target, but trimmed her 2015 earnings forecast nearly 3 percent to $4.25.