Wells Fargo & Company (NYSE:WFC) provides financial services, including banking, lending, investment, and wealth management solutions. During Thursday’s episode of Mad Money, Jim Cramer addressed the recent price target cut by David Konrad, an analyst at Keefe, Bruyette & Woods. After the company reported its quarter on July 14, Konrad trimmed his price target on the stock from $98 down to $94 while maintaining a Market Perform rating.
Cramer’s take is that the analyst community is focusing too much on small details and missing the big picture. By focusing strictly on how much Wells Fargo & Company (NYSE:WFC) makes purely on deposits versus loans, they are punishing a company that is successfully pulling off a highly lucrative corporate makeover. Because the stock fell to roughly 12 times earnings following the report, Cramer viewed the analyst-driven sell-off as a buying opportunity. During the episode, the Mad Money host stated:
Look, we had five major banks reporting on Tuesday. Oh, my head was on a swivel, for heaven’s sake. I mean, jeez, I tried to pay attention to each one. Sure, JPMorgan was terrific. Everyone knows Goldman Sachs. Wells Fargo, however, was savaged with a powerful analyst who actually cut his price target. Most of the community… dismissed this company and its quarter, but I would contend that Wells Fargo’s quarter wasn’t just good; I thought it was terrific. The analysts are fixated on this thing called net interest income, and also they care about net interest margin. They want banks to make more money on the difference between what they pay you for your deposits and what they charge you for loans. That is all they seem to care about, and sometimes it’s just so myopic.
When I was listening to the Wells Fargo conference call, I had to hear analysts one after another condescendingly ask CEO Charlie Scharf, who knows a heck of a lot more about banking than they do, why he isn’t making more off the deposits in his loans… Meanwhile, Charlie was talking about turning Wells Fargo from a bloated, underachieving lender into a merchant bank of the first order that’s helping companies come public and do mergers and acquisitions, where the money is, by the way. It’s a very difficult thing for a bank to change its stripes, transforming itself from a loser in these incredibly lucrative businesses to a winning investment bank. But when you look at how Goldman Sachs is killing it, you know that’s what Charlie wants to emulate, and I think that’s a great plan. He’s rapidly moving up the tables. Listen, Charlie Scharf is known as one brilliant banker. He saved Wells Fargo, as far as I’m concerned, and yet it got killed when it reported because of these naysaying analysts who don’t understand that Wells is transforming itself into something much better. It sells at 12 times earnings, for heaven’s sake. I told CNBC Investing Club members that today Wells Fargo was a steal.
Furthermore, it is important to note that in contrast to the price cuts, Baird raised its Wells Fargo & Company (NYSE:WFC) price target to $92 from $85. However, the firm maintained a Neutral rating on the stock because it believes that while the company’s execution was solid, its current valuation does not leave much higher upside.
Photo by Erol Ahmed on Unsplash
Lastly, Cramer has been bullish on the stock for a while now. After the company reported its Q1 on April 14, despite coming off a “not-so-hot quarter,” he argued the next day that the bank is still projected to achieve 11.7% earnings growth while trading at a bargain multiple of just 11.5x earnings. Additionally, Cramer pointed out that its actual exposure to the widely disliked software category within private credit is minimal.
Insider Monkey tracks hedge fund sentiment to answer questions like whether Wells Fargo is the best bank stock to buy. Even though hedge fund sentiment towards WFC improved during the first quarter, Wells Fargo isn’t among the 12 Undervalues Financial Stocks To Buy Now.
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