He’s impressed with its cost controls and other elements of the San Francisco company's story.
“Since the announcement on Sept. 8, 2016, of a settlement with regulators for sales fraud, Wells Fargo shares have been significant underperformers,” Martinez wrote in a commentary.
“However, Wells Fargo also has substantial self-help opportunities, namely in the form of cost optimization. Additional good news could come from macro tailwinds leading to revenue stabilization and even growth after considerable declines in recent years.”
To be sure, he noted risks. “In fact, we would caution against an overly optimistic view of the timing of the asset cap being lifted. Nonetheless, the risk-to-reward profile appears asymmetrically positive to us,” he said.
“Our 12-month price target of $41 per share [up from $23] suggests 25% total return potential.
"This upside estimate could be conservative as our price target is based on a regression analysis using 2022 estimated return on equity as the basis. Wells Fargo's RoE could move much higher beyond 2022. This cannot be said for most banks we cover.”
“Low profitability means considerable earnings leverage to efficiency improvements and incremental revenue gains,” Martinez said. “Net interest income likely finds a floor as long-end rates move higher.”