Morgan Stanley says Wells Fargo stock inexpensive; raises rating

(Reuters) - The recent decline in Wells Fargo & Co's WFC.N share price after the bank agreed to settle a fraud case with regulators makes the stock an attractive buy, Morgan Stanley said, raising its rating to "overweight."

The logo on a Wells Fargo bank building is seen in downtown San Diego, California March 18, 2014. REUTERS/Mike Blake

The upgrade comes on a day when Wells Fargo Chief Executive John Stumpf is testifying before the Senate banking committee in connection with the case.

Wells Fargo agreed to pay $185 million in fines earlier this month, after reaching a settlement with three regulators over sales abuses as employees opened sham credit card, debit card and other accounts to meet aggressive sales targets.

“Wells is rarely this inexpensive. This is an opportunity,” Morgan Stanley analyst Betsy Graseck wrote in a note to clients.

Wells Fargo’s shares have fallen about 8 percent since the company disclosed the settlement on Sept. 8.

Morgan Stanley said it does not see a risk to Wells Fargo’s dividends as the U.S. Federal Reserve has not objected to the bank’s 2016 capital plan and as the fine does not materially impact its earnings.

“Wells stock should begin to find a bottom as the House and Senate hearings conclude,” wrote Graseck, who is rated three stars out of five for his recommendation on the stock, according to Thomson Reuters data.

Morgan Stanley, which sees a 15 percent upside to its current price target of $53, also cut Wells Fargo’s 2017 earnings per share estimate by 3 percent to $4.10 as it expects deposit service charges and credit card fees to grow slower.

Of the 35 analysts covering the stock, 20 rate it “buy” or higher, nine “hold” and six “sell” or lower. The stock has a median price target of $52.50.

Wells Fargo’s shares were up 2.2 percent at $47.02 in premarket trading on Tuesday.

Reporting By Sudarshan Varadhan in Bengaluru; Editing by Saumyadeb Chakrabarty