What Do Analysts Think of Wells Fargo Stock?

By Markets Fool.com


Wells Fargo has never failed a physical. Image source: iStock/Thinkstock.

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Analysts are bullish on Wells Fargo (NYSE: WFC) stock, but they don't think its share price has as much upside as its peers.

Most of the 36 analysts surveyed by Yahoo! Finance who track Wells Fargo rate the bank either a buy or a strong buy. And while a third of them rate it a hold, none of them are encouraging clients to sell their stakes in the nation's third-biggest bank by assets.

Taken together, Wells Fargo earns a recommendation rating of 2.4, which is in the vicinity of a buy. The scale goes from 1.0 for strong buy, up to 5.0 for strong sell. A rating of 3.0 is a hold recommendation, while a 2.0 is the standard buy recommendation.

Bank

Recommendation Rating

Bank of America

1.9

Citigroup

2.0

JPMorgan Chase

2.1

Wells Fargo

2.4

Morgan Stanley

2.4

Goldman Sachs

2.4

Data source: Yahoo! Finance.

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Wells Fargo ranks near the bottom of the list compared to the nation's five other megabanks, but this has less to do with its future prospects than it does with its current valuation. In that vein, it's no coincidence Bank of America and Citigroup have the highest ratings, and trade at the largest discounts to book value.

This also helps to explain why analysts see less short-term upside in Wells Fargo than they do in Bank of America and Citigroup. The consensus price target on Wells Fargo stock is $53, which is about 9% higher than where it trades today. By comparison, as you can see in the table below, analysts are forecasting double-digit upsides for B of A and Citi.

Bank

Current Price

Consensus Price Target

Consensus Upside

Citigroup

$46.49

$54.19

16.6%

Bank of America

$15.23

$17.28

13.5%

Wells Fargo

$48.62

$53.00

9%

Goldman Sachs

$166.76

$181.21

8.7%

JPMorgan Chase

$65.88

$69.84

6%

Morgan Stanley

$30.69

$32.37

5.5%

Data source: Yahoo! Finance.

It's worth noting, too, that Wells Fargo has suffered a handful of analyst downgrades. Most recently, Raymond James downgraded it from an outperform to a market perform. But because these downgrades struck industrywide, it's fair to say that they were triggered primarily by the broader economy, not by concerns specifically about Wells Fargo.

And, to be clear, this isn't the most hospitable environment for banks. In addition to the fact that economic concerns about China and Europe are suppressing loan demand, low interest rates here in the United States are constraining lending margins as well. This weighs on banks' profitability. Making matters worse for the institutions are post-financial-crisis regulations that have increased their operating costs.

Even after factoring in these concerns, however, analysts are still broadly bullish on banks. While they see more short-term upside in undervalued stocks like Bank of America and Citigroup, they're optimistic about Wells Fargo's prospects too.

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John Maxfield owns shares of Bank of America, Goldman Sachs, and Wells Fargo. The Motley Fool owns shares of and recommends Wells Fargo. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.