There is “too much opportunity at the Stagecoach to ignore,” David George, research analyst at Baird, wrote in a note on Thursday:
At a time when bank stocks have stubbornly lagged behind the recovery in the broader market, analysts increasingly see Wells Fargo as the best bank investment—provided investors are willing to be patient.
The back story. Wells Fargo has been one of the more beaten-up stocks among the big banks—a cohort that includes JPMorgan Chase and Bank of America . Wells Fargo shares are down 57% this year and the stock trades at 0.7 times its tangible book value, well below its post-financial crisis median of 1.8 times. Meanwhile, the PHLXKBW Bank Index is down 39% and peer banks are trading at or above tangible book.
But while all banks are contending with the same set of problems because of the coronavirus pandemic—low interest rates and fears of loan losses—Wells Fargo is one of the few banks that has things it can do to improve itself outside of broader macroeconomic conditions. George estimates that each $1 billion drop in expenses could add roughly 20 cents to earnings per share and improve the bank’s efficiency ratio by 1.4 percentage points. For reference, Wells Fargo’s efficiency ratio—a measure of a bank’s expenses over revenue—is above 70%, while peers are in the high 50s, George wrote.“Executing on cost savings and exiting the Fed’s asset cap would be the biggest near-term positives.
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