After Wells Fargo (WFC) announced on Friday that it has named Charles Scharf as the company's new CEO and President, Argus analyst Stephen Biggar upgraded the stock to Buy as he sees the news as positive given the executive's "impressive industry background." Meanwhile, his peer at Baird downgraded Wells Fargo to Neutral saying that while he likes the new CEO choice, the macro headwinds of slow growth and low rates are real, and improving the earnings run-rate and efficiency will take time.
NEW CEO: On Friday, the board of Wells Fargo announced that it has named Charles Scharf as the company's CEO and president, and a member of the board, effective October 21. Scharf was chairman and CEO of Bank of New York Mellon (BK). In March, the board had appointed C. Allen Parker interim CEO and president and a member of the board. Parker will continue to serve in these roles until Scharf joins the company.
BUY WELLS FARGO: In a research note following the company's CEO announcement, Argus' Biggar upgraded Wells Fargo to Buy from Hold, with a $60 price target on the shares. The analyst told investors that he is positive on Scharf's "impressive industry background" to improve Wells Fargo's financial performance, noting that he is a former protege of JPMorgan's (JPM) Jamie Dimon. Biggar also noted that he expects the new CEO to initially focus on addressing the company's regulatory issues, which stifled growth, and working toward removal of the Federal Reserve's $2T asset cap imposed on the bank. The analyst added that this removal should be a "strong catalyst" for Wells Fargo shares.
Also commenting on the news that Charles Scharf has been tasked for an overhaul at Wells Fargo, Ben Walsh wrote in this week's edition of Barron's that the reward is “potentially great” as the market has favored banks with large U.S. consumer businesses. The author argued that for patient investors, Scharf's task ahead is an opportunity now and recommended buying the stock.
MOVING TO THE SIDELINES: Not as bullish, Baird analyst David George downgraded Wells Fargo to Neutral from Outperform and lowered his price target on the shares to $50 from $52. While the analyst said he likes the new CEO choice, he pointed out that the macro headwinds of slow growth and low rates are real, and improving the earnings run-rate and efficiency will take time. Further, he noted the shares had a nice run over the past month and valuation looks more balanced at 11.5-times forward earnings. He would be a buyer in the mid-$40's.
Meanwhile, Morgan Stanley analyst Betsy Graseck raised her price target for Wells Fargo to $50 from $47 but kept an Equal Weight rating on the shares. The analyst acknowledged that the hiring of Charlie Scharf to become CEO at the company is a positive that lifts "a big uncertainty." However, she remains on the sidelines until there is more clarity on when the Fed imposed asset cap and consent order can be lifted, estimating that it has added about $2B to the bank's expense base. Moreover, Graseck wonders if Scharf will pursue further business rationalization, which could reset earnings expectations going forward. While the analyst sees a path to a potential $56 stock price long-term, she said investors should "watch out in the near-term" given top-line pressure.
PRICE ACTION: In morning trading, shares of Wells Fargo have dropped almost 1% to $50.33.
"Street Fight" is The Fly's recurring series of exclusive stories that highlight a stock or sector that is in focus amid divergent views from Wall Street analysts.