Analysts Are Downgrading These 5 Stocks

02. Wells Fargo & Company (NYSE:WFC)

Number of Hedge Fund Holders: 78

Wells Fargo & Co (NYSE:WFC) offers various financial services, including banking, investment, mortgage, and consumer/commercial finance, to clients. On June 7, Odeon Capital analyst Dick Bove revised their recommendation for Wells Fargo & Company (NYSE:WFC) from “Buy” to “Hold” and has set a price target of $44.60 for the stock.

In its 2022 annual investor letter, Davis New York Venture Fund provided the following statement regarding Wells Fargo & Company (NYSE:WFC):

“Our investment thesis for our next largest bank investment, Wells Fargo, is totally different. As is well known, Wells Fargo & Company (NYSE:WFC) is the country’s third-largest bank, serving one in three US households. Years of regulatory missteps under prior managements resulted in reputational damage, higher-than-average expenses, numerous consent orders, caps on asset growth, all added to the negative impact of low rates on their interest income. However, where others see bad news, we see resiliency and gradual improvement. Wells Fargo’s resiliency is reflected in the fact that despite years of terrible headlines and congressional hearings, Wells Fargo’s core customers stayed put and customer attrition remains extraordinarily low.

As to gradual improvement, new management has made steady headway in closing consent orders, settling regulatory matters, and upgrading systems. Thus, rather than increasing profits from growth, Wells Fargo’s earnings growth for the next three-to-five years should come from the combined tailwinds of rising interest income, partially offset by normalizing credit costs, reduced expenses as systems improve, and the scandals of the last decade are gradually put behind them, and the return of excess capital through share repurchases and rising dividends. The hypothetical earnings bridge displayed in Figure 6 gives some sense of the earnings power we see unfolding for this durable financial franchise in the years ahead.

While our grounded optimism carries the day, we are mindful of the risk that Wells Fargo’s historically excellent credit culture may have deteriorated or that exasperated regulators may choose to extract even more major penalties for past infractions.”