Wells Fargo & Company (WFC) shares rose more than 4% during Friday's session after a pair of analyst upgrades ahead of its earnings next week.
Evercore ISI added the bank to its Tactical Outperform List. Analyst John Pancari called the recent pullback overdone despite an anticipated dividend cut and increase in loan loss reserves. After "ripping off the band-aid" with these announcements, the analyst sees a near-term narrowing of the stock's discount relative to its large-cap peer banks. Wells Fargo trades at 73% of its tangible book value compared to more than 100% for its large-cap peer banks.
Baird also upgraded Wells Fargo stock from Neutral to Outperform with a $35.00 price target. Analyst David George believes that the dip in bank stocks creates an opportunity to increase exposure in the sector. In addition to Wells Fargo, the analyst upgraded Comerica Incorporated (CMA) to Outperform, saying that it could be an attractive acquisition target.
Wells Fargo and other large-cap banks could see a volatile earnings season given the low interest rate environment, increasing loan loss reserves, and the health of the overall economy.
From a technical standpoint, the stock rebounded from reaction lows made earlier this week. The relative strength index (RSI) remains neutral with a reading of 43.67, but the moving average convergence divergence (MACD) remains in a bearish downtrend. These indicators suggest that investors should maintain a bearish bias in the intermediate term.
Traders should watch for an extended rebound from reaction lows of around $24.00 toward the 50-day moving average at $26.48. If the stock breaks out from those levels, traders should watch for a move to retest reaction highs of around $34.00. If the stock breaks down, traders could see a move to retest lows of around $22.00 over the coming sessions.
The author holds no position in the stock(s) mentioned except through passively managed index funds.