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Vining Sparks says Wells Fargo still a 'strong buy'

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Vining Sparks says Wells Fargo still a 'strong buy'

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* At B. Riley FBR, First Busey Corp. got an upgrade to "buy" from "neutral."

Analyst Steve Moss cited the Champaign, Ill.-based company's "steady, conservatively underwritten, organic loan growth and fill-in acquisitions," and projects 2018 to "bring more of the same."

Moss, however, reduced his EPS estimate for the year to $2.25 from $2.40, mainly because the effective tax rate of approximately 28% was higher than the 23.5% earlier modeled. He also lowered the price target by a dollar to $35.

Notable reiterations

* The "last shoe has dropped" for Wells Fargo & Co., write Marty Mosby and Mason Mosby, and what this means is a clearer path forward.

The Vining Sparks analysts pointed out "a couple of positive messages that are being overlooked," amid the reactions to the Federal Reserve's consent order. The regulator raised no new issues, "which by default is an independent confirmation that Wells Fargo management has successfully identified all the underlying short-falls." Additionally, requirements issued were reflective of steps already being taken by the bank, and management has a "definitive timeline" for resolving the matter.

That said, they cut their 2018 EPS estimate to $4.75 from $5.20 — which is still higher than Wells Fargo's 2017 operating EPS, as the company "should be able to reduce its corporate tax rate, hold its operating expenses flat, grow revenues slightly, and lower its outstanding shares."

They also reduced the price target to $68.50 from $75.00, but kept the stock's "strong buy" rating.

* "Reduced market intervention" has not only "helped to stabilize trading revenue pool contraction," Sandler O'Neill & Partners' Jeffery Harte wrote after talks with Citigroup Inc.'s Paco Ybarra, but could also lead to "a more rapid rebound in investor sentiment" and an accompanying "dramatic increase in trading related revenues."

Ybarra, Citi's head of global markets and securities services, additionally spoke about competition from European investment banks and the impact of the Markets in Financial Instruments Directive. Citi's European counterparts, he said, are no longer ceding trading revenue market share, but neither do they seem to be fighting to regain lost ground. And the hit from MiFID has been "mild," amid encouraging discussions with clients regarding Citi's research reports.

Sandler's Harte reiterated his "buy" rating on Citi's stock, on the expectation the company's markets and security services businesses can keep gaining market share. The price target is $89.

Industry report

* And Stephens analysts named their top picks following fourth-quarter 2017 results. Among superregionals, favored stocks were KeyCorp and BB&T Corp., for revenue synergy potential and valuation, respectively.

Also on the top pick list were Cincinnati-based First Financial Bancorp.; Illinois' First Midwest Bancorp Inc. and Midland States Bancorp Inc.; Indiana-based First Merchants Corp.; Virginia's Union Bankshares Corp.; Maryland's Eagle Bancorp Inc.; Montebello, N.Y.-based Sterling Bancorp; Dallas-based Triumph Bancorp Inc.; and Pinnacle Financial Partners Inc. of Tennessee.