NEW YORK ( TheStreet) -- Saying the stock's valuation was "too attractive to ignore," FBR analyst Paul Miller on Tuesday upgraded his rating for Wells Fargo ( WFC) to "Outperform" with a price target of $31.00.

Miller's target would be a 35% gain from Monday's closing price of $22.93. Wells Fargo's shares declined 9% on Monday, following last week's 9% decline.

Bank of America ( BAC) led the largest U.S. banking names down, as its shares dropped 20% to close at $6.51. Miller continues to rate the nation's largest bank holding company "Outperform" with a price target of $12.00.

The analyst said that Wells Fargo was replacing PNC Financial Services ( PNC) among his firm's "top picks" in the banking space, although PNC continues to be rated "Outperform" by FBR, with a $70 price target.

Miller said the Wells Fargo upgrade "presumes that bank investors will flock to quality names that can best weather the adverse effect of a flattening yield curve," and that "the company's strong deposit franchise, diverse business lines, and solid mortgage origination platform position it well to sustain a healthy" net interest margin, with "77% of its funding base coming from core Deposits."

A bank's net interest margin is the spread between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings.

The analyst also touted Wells Fargo's "decline in non-interest operating expenses, coupled with lower net interest income, which offset lower mortgage banking income." Factoring in "historically low mortgage interest rates and a seasonally strong third quarter," Miller expects the company to "show some strength this quarter compared to the first two quarters of this year."

Wells Fargo's shares are at a low forward P/E of seven times Miller's 2012 earnings estimate of $3.25 a share.

Miller also rates JPMorgan Chase ( JPM) "Outperform," with a price target of $56.00, which would be a 64% gain from Monday's closing price of $34.06. JPMorgan saw its shares drop 9% Monday, after last week's 7% decline.


-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.