By Sam Boughedda
Raymond James analysts upgraded Wells Fargo (NYSE:WFC) to Strong Buy from Outperform in a note Thursday, claiming it will be a major beneficiary of the changing environment due to the SVB Financial Group and Signature Bank fallout.
"As highlighted in our 1Q23 earnings previews, we were cautious going into the earnings season before the failures of SIVB and SBNY in early March due primarily to accelerating funding pressures, and are now more cautious on results given a spike in bank borrowings since the failures and a more competitive landscape for deposits," the analysts wrote. "With this backdrop in mind, we believe many estimates have not yet captured the more difficult environment being faced by the banks, which will likely remain so in the near term."
The analysts explained they are upgrading Wells Fargo as they see several incremental positive catalysts for the bank going forward.
"As a systemically important financial institution, we believe Wells Fargo will be a major beneficiary of the SIVB/SBNY fallout," the analysts stated. "With uninsured depositors across the country fleeing to larger and safer institutions, we expect incremental growth in Wells' deposit base."
In addition, Raymond James believes regulators will re-direct banking industry concerns to managing the contagion impact of the SIVB/SBNY collapses.
"We believe Wells offers greater EPS growth potential over the intermediate term given the possibility of the removal of consent orders and the associated regulatory expenses, which amount to billions of dollars every year," the analysts added. "Net, with WFC shares trading slightly above tangible book value, we believe the current valuation represents an attractive entry point for investors."