Wells Fargo To Trade Sideways

Brian Kleinhanzl of Keefe, Bruyette & Woods believes the current valuation of Wells Fargo & Co (NYSE: WFC) is not attractive enough to mitigate the uncertainties regarding revenue and expense that occur due to the changing sales culture in Consumer Banking.

Kleinhanzl downgraded the rating on the company from Outperform to Market Perform, while lowering the price target from $57 to $48.

Moving To The Sidelines

“What has changed for us since pre-earnings is that the uncertainty has increased as we previously thought only minor changes would be needed to move past the scandal but that is likely not the case, in our view,” the analyst explained.

Kleinhanzl prefers to move to the sidelines until there is greater clarity regarding potential future changes and the impact of such changes.

Stock To Trade Sideways

While the analyst does not see any significant imbalance in the risk-reward profile, Kleinhanzl mentioned that “trading sideways is not an attractive investment thesis either.”

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The analyst still believes there could be value in Wells Fargo’s share over the long term, although it might take two to three years for the stock to realize the value, given the damage done by the scandal to the company’s management, earnings and brand.

“Over the next 12 months, we believe investors can find better investment opportunities within the Universal Bank sector,” Kleinhanzl went on to say.

The EPS estimates for 2017 and 2018 have been lowered.

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