Baird Turns Bullish On U.S. Bancorp, Says Wells Fargo Has Improving Narrative

Wells Fargo & Co WFC and U.S. Bancorp USB were trading higher Monday after fresh bullish commentary from the sell side. 

The Analyst

Baird analyst David George upgraded U.S. Bancorp from Neutral to Outperform and reiterated a $56 price target. George also reiterated an Outperform rating and $62 target for Wells Fargo.

The Thesis

Bank stocks have become oversold, and the first-quarter earnings season should be solid given the environment, George said in a Monday note. (See the analyst's track record here.)

U.S. Bancorp is better than the average bank, George said. 

“Leading returns, solid growth and a great track record of credit risk management are worth more than the peer median multiple." 

Wells Fargo investors will need to be patient while the company works through its near-term issues, but its core business is solid, the analyst said.

“We think the narrative for WFC improves over the coming months with decent Q1 results (steady core business trends should be enough for a relief rally), updates on operating leverage/financial targets at the May investor day, a likely CCAR pass with solid capital return in June (excess capital 12 percent of market cap) and likely exit from the balance sheet cap restriction to end Q3." 

The regulatory risk associated with Wells Fargo is certainly worth the potential reward, with 10x 2019 EPS estimates and a 3.1-percent dividend yield, George said. 

Price Action

Wells Fargo was up 2.27 percent at the time of publication Monday, while U.S. Bancorp was up 3.63 percent.

Year-to-date, the two stocks remain down 14.5 percent and 6.4 percent, respectively.

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