Wells Fargo Upgraded To Outperform, Baird Says $25 Billion In Lost Market Cap Is Enough

Following the 10 percent decline in Wells Fargo & Co WFC shares over the past couple of weeks, Baird’s David A. George believes the risk/reward is now attractive, on a relative basis. He upgraded the rating on the company to Outperform, with a price target of $50.

Limited Downside

“We see only modest upside in the bank group here, but believe WFC looks good relative to most of the super-regionals, and believe downside risk is limited with shares carrying a ~3.4 percent dividend and now trading at less than ~6x pre-provision earnings,” the analyst mentioned.

Related Link: Deutsche Bank Looks To Bank Of America, JPMorgan To Predict Where Wells Fargo's Stock Is Headed Next

George explained that while there still was headline risk, associated with Wells Fargo’s retail banking sales practices and the congressional testimony scheduled for September 20, negative sentiment on the stock was likely to peak over the next few days.

The analyst believes the market’s extraction of $25 billion in the company’s market value, associated with a $2.6 million revenue loss, was overdone.

Dividend Yield

George also pointed out that the dividend yield of 3.4 percent also helps to limit the downside and that investors are likely to focus their attention over the coming months on Wells Fargo’s core fundamentals, which continue to be strong.

“The stock has gone from loved to loathed in two to three weeks, and we believe the sell-off creates a good relative buying opportunity,” the analyst added.

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