Compass Point Downgrades Wells Fargo to “Neutral” (WFC)


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Bank holding company, Wells Fargo & Company ( WFC ) was downgraded to "Neutral" on Monday by Compass Point.

Analysts at Compass Point downgraded WFC from a "Buy" to "Neutral" Monday with a price target of $37, a 10% decrease from the previous target of $41. The new price target, suggests a 7.4% increase from the stock's closing price of $34.25 Friday, and a 25.5% increase from the YTD price of $27.56.

Although the price target has been lowered, Compass Point believes that WFC has a good chance of turning around the decline in the long term. Factors such as economic growth an rising interest rates may help the company, but they will only achieve a higher price target if they are able to successfully save on expenses.

A Compass Point analyst stated, "It has become apparent that the company will have a difficult time showing meaningful earnings growth in the next year due to: (1) interest rates at historic lows, (2) 13% of the loan portfolio in run-off and (3) expenses above a $12 billion quarterly run rate. Furthermore, the company's recent decision to keep conforming mortgages on the balance sheet, versus selling to the GSEs, illustrates the predicament WFC finds itself in. The company does not want to turn away deposits because they could prove to be valuable when rates are higher, but needs to find a place to park the excess liquidity. If they buy MBS securities, they risk premium amortization from ultra-low rates, but if they put it on their balance sheet, they are taking greater duration/interest rate risk. Either way, this dynamic makes it very difficult for WFC to grow its top-line."

Wells Fargo shares were mostly flat during premarket trading Monday.

The Bottom Line
Shares of Wells Fargo ( WFC ) have a 2.57% dividend yield, based on Friday's closing stock price of $34.25. The stock has technical support in the $30-$32 price area. If the shares can firm up, we see overhead resistance around the $36-$37 price levels.

Wells Fargo & Company ( WFC ) is not recommended at this time, holding a DARS™ Rating of 3.3 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks , as well as a detailed explanation of our ratings system here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Stocks

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