Wells Fargo stock price target raised, neutral stance held by Compass Point

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Tuesday, Compass Point adjusted its stock price target for Wells Fargo (NYSE:WFC), increasing it to $60.00 from the previous $57.00, while maintaining a Neutral stance on the stock. The revision in the price target is based on a set of financial forecasts for the coming years. For fiscal year 2024, the firm's core earnings per share (EPS) estimate is now set at $5.45, up from $5.16, and for fiscal year 2025, the estimate has been slightly increased to $5.60 from $5.50.

The updated fiscal year 2024 estimate reflects an anticipated rise in fee income and a lower provision for credit losses, though these are partially balanced by a forecasted decrease in core net interest income (NII).

The slight increase in the core EPS estimate for fiscal year 2025 is primarily attributed to expectations of higher core NII/net interest margin (NIM) and stronger fee income, which are somewhat counterbalanced by a projected higher provision for credit losses and an increase in average diluted shares, indicating a lower estimate for share buybacks.

Compass Point notes several potential positive developments for Wells Fargo in the upcoming year. These include the possible removal of additional regulatory consent orders, the lifting of the asset cap, and robust share buyback activity, which may be supported by capital relief from a revised Basel III End-Game proposal. However, the firm also points out that the current valuation of Wells Fargo's shares seems to already incorporate these catalysts.

The analyst expressed concerns about the impact of interest rate cuts on Wells Fargo's NII/NIM, given the bank's relatively strong asset sensitivity compared to other institutions covered by Compass Point. This sensitivity could limit Wells Fargo's performance relative to its peers, especially as the current downward interest rate cycle continues to unfold. The removal of the asset cap is anticipated to provide a short-term boost, but it is expected to be a 2025 event.

In other recent news, Wells Fargo has seen significant attention from analysts following its robust third-quarter earnings. Phillip Securities upgraded Wells Fargo's stock from Neutral to Accumulate, raising the price target to $65 from $60.83 due to anticipated growth in non-interest income and a reduction in expenses and provisions.

The firm also projected a 5% rise in the bank's fiscal year 2024 earnings. Similarly, Citi raised Wells Fargo's price target from $63 to $67, while Piper Sandler and Baird increased the bank's price target to $62.

The bank reported a net income of $5.1 billion, surpassing estimates with an earnings per share (EPS) of $1.42. Additionally, the bank completed $3.5 billion in stock repurchases in Q3 and announced a 14% dividend increase. However, Wells Fargo's core pre-provision net revenue saw a year-over-year decrease of 7%.

Evercore ISI revised upwards their EPS estimates for 2025 and 2026 for Wells Fargo, marking a 4% increase from the previous estimates. Despite these developments, the bank has adjusted its full-year 2024 net interest income (NII) guidance to a decrease of approximately 9%, aligning with consensus estimates. Wells Fargo's expense guidance remains consistent at about $54 billion. These recent developments provide an insightful snapshot of Wells Fargo's financial performance and outlook.

InvestingPro Insights

Recent data from InvestingPro adds depth to Compass Point's analysis of Wells Fargo (NYSE:WFC). The bank's market capitalization stands at $207.96 billion, reflecting its significant presence in the financial sector. Wells Fargo's P/E ratio of 12.87 suggests a relatively modest valuation compared to its earnings, which aligns with Compass Point's view that current share prices may already factor in potential positive catalysts.

InvestingPro Tips highlight that Wells Fargo has maintained dividend payments for 54 consecutive years, demonstrating a commitment to shareholder returns that complements the potential for share buybacks mentioned in the analyst report. Moreover, the tip noting that management has been aggressively buying back shares supports Compass Point's expectation of robust share buyback activity.

The bank's strong performance is evident in its 56.26% price total return over the past year, and it's currently trading near its 52-week high, with the price at 98.12% of the 52-week high. This performance data reinforces the analyst's perspective on the stock's current valuation.

For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Wells Fargo, providing a broader context for investment decisions.

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