Societe Generale Considers Wells Fargo & Co (NYSE:WFC) Good To Sell

The wind of expected interest rate hike is growing strong, which has put the banking stocks back under the selling pressure. Among all, Wells Fargo & Co (NYSE:WFC) turned out as another banking stock that lost 2.52% during the previous day trade to settle at $53.29. Taking cues from Societe Generale’s Murali Gopal, the bank has more scope to fall. The research firm has acknowledged the stock as ‘priced to perfection’ but it said that its time to sell it.

Do analyst foresee a momentum shift in WFC?

Weak Outlook

Gopal explained that Wells Fargo & Co (NYSE:WFC)’s near-term outlook is challenging and that they expect its profit to dip in Fiscal Year 2015. He added that the bank is overseeing the possibility of lackluster earnings growth amid loan growth that is highly constrained to low-yielding assets. In addition, Gopal noted that the bank faces several headwinds in the form of Net Interest Margin (NIM) pressure, capital issuance for loss-absorbing and increasing loan loss provision costs. Further, the research firm said in its report that the valuation multiples continue to expand, where it see little opportunity to re-rate the stock.

Gopal said that the performance of Wells Fargo & Co (NYSE:WFC) on the stock exchange will be driven by its earnings growth. He forecast EPS growth of 3% for the year 2015. In view of such factors, the research firm recommended a ‘Sell’ on the stock while it suggested investors to buy Bank of America Corp (NYSE: BAC) and JPMorgan Chase & Co. (NYSE:JPM).

Dividend expectations

Despite a weak outlook on Wells Fargo & Co (NYSE:WFC), analysts estimate that the bank will pay out over $22 billion within the next 15 months as dividends. The results of the Federal Reserve’s final annual stress tests will be out today, which will set the expectations for dividends. The banks have passed the Fed’s initial round of the stress test with flying colors, and they have adequate capital to raise quarterly payout to shareholders, according to several analysts’ estimates. The banks have the power to disburse as much as $109 million over the next one and a half year, but the hopes will be confirmed only later today.

 

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John Eisler

John Eisler

John is a special projects and general assignment reporter, noted for breaking several exclusive stories.