Downgrades
UBS analyst Saul Martinez downgraded Wells Fargo & Co. to "neutral" from "buy." In a note on the downgrade, he cited the bank's reduction to 2020 and 2021 EPS estimates, uncertainty around the timing of efficiency improvements and valuation considerations.
At a conference, Wells Fargo gave new guidance lowering its net interest income to a decline of about 6% year over year. "The lower guidance is not a big surprise to us," Martinez wrote, "but nonetheless suggests considerably more pressure ... than what was previously embedded in our estimates."
Martinez also estimated 2020 net interest income would fall by 6% based on a lower "jump off" point entering 2020 and lower interest rates.
The cost of overcoming its consent order and the reduction in efficiency from these added costs also were reasons for the downgrade, according to the note. "It is unclear to us when [Wells Fargo] can more fully shift focus from risk control to efficiency enhancements," wrote Martinez.
Martinez also wrote that while a new CEO would be expected to "focus on generating positive outcomes," the "limited visibility" of the hiring process has created uncertainty around further costs to the bank.
The analyst lowered Wells Fargo's 12-month price target to $49 from $51. EPS estimates for 2019 rose to $4.82 from $4.76, but 2020 estimates dropped to $4.27 from $4.64 and 2021 estimates fell to $4.80 from $5.26.
Initiations
Stephens Inc. analyst Matt Olney initiated coverage of Leawood, Kan.-based CrossFirst Bankshares Inc. on Sept. 10 after the bank priced its IPO on Aug. 14. The analyst gave the bank an "equal weight" rating, with a price target of $16 and EPS estimates of 79 cents for 2019 and $1.05 for 2020.
"The bank's branch-lite strategy should drive positive operating leverage, bringing profitability closer to peers sometime in 2021," wrote Olney. The bank only has seven branches in Kansas, Missouri, Oklahoma and Texas.
Olney pointed to the bank's "strong capital" levels from its recent IPO, writing that the bank "has dry powder for continued organic growth and opportunistic M&A."
The bank's five-year loan growth CAGR of 44% puts it above peers, but the bank has below-peer profitability, Olney wrote. CrossFirst may also be vulnerable to an energy commodity downturn, with about 11% of its loans in energy, wrote the analyst, and the bank's unproven credit history may also be a challenge for investor sentiment.
