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Sandler downgrades Wells Fargo; SunTrust initiates Seacoast Banking

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Sandler downgrades Wells Fargo; SunTrust initiates Seacoast Banking

Downgrade

R. Scott Siefers, a Sandler O'Neill & Partners LPanalyst, lowered Wells Fargo& Co.'s rating to "hold" from "buy" andalso decreased his price target to $51 from $55.

However, the analyst maintained his 2015 and 2016 EPSestimates at $4.03 and $4.25, respectively.

The analyst believes that market conditions have changed forbank stocks since he upgraded the stock in September 2015, following the market's "violentswoon." For instance, he highlighted fewer expected rate increases over aneven longer time horizon; flatter yield curve; and energy's greater prominencein investors' minds. However, in his view, the company was able to maintain itsprofitability and momentum in light of persistent macro challenges.

He also noted that at a high level, the company was able todistinguish itself by positioning itself better for "lower forlonger" through swap use; initiating a multiyear efficiency program tomake sure it gets the best "bang for its buck" on expenses; andsupplementing organic growth with several asset purchases from General Electric Capital Corp.

He highlighted that the company did well overall andoutperformed its peers, but it is still trading at a level lower than itsmarket price when the analyst upgraded the stock in 2015.

However, he does not expect the company's core attributes —including excellent management, "near best-in-class" performancemetrics and the company's uncanny ability to sustain consistent performance —to change.

Initiation

SunTrust Robinson Humphrey analyst Michael Young initiatedcoverage of Stuart, Fla.-based Seacoast Banking Corp. of Florida, with a"neutral" rating, and a 12-month price target of $17.

His 2016 and 2017 EPS estimates are 95 cents and $1.18,respectively.

The analyst is "positively biased" on the stock ashe believes that the company's profitability will come closer to its peers inthe near term through additional scale and cost cuts. He also thinks thatprivate equity and activist shareholders might pursue alternative options torealize shareholder value in case improvement falters. In his research note, henoted that in case of an M&A transaction, the company would possibly garnera bid of approximately 2.0x tangible book value or $20 per share.

The analyst set his 2016 EPS estimates lower than thecompany management's guidance of $1 for 2016, given lower expected rate hikes.Furthermore, he believes that the company's valuation already reflects a modestM&A premium. The analyst's price target represents 14.4x his 2017 EPSestimate and 1.8x tangible book value, compared to that of peers at 11.9x and1.7x, respectively. He believes that a premium is merited because of improvingfundamental performance and limited downside risk from a potential sale.However, in case of no M&A, he sees little additional valuation upside.