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Stocks To Short?
TMF Python's Short

Wells Fargo & Co. (NYSE: WFC)
420 Montgomery St., San Francisco, CA 94163
Phone number: 415-477-1000
http://www.wellsfargo.com
Message Board
Price - $258 5/8

Description of Business: Wells Fargo is the #2 bank in California, after BankAmerica. The company's core business is consumer retail banking.

Why do I think WFC will make a great short? Wells Fargo one year ago merged with First Interstate Bank after a hostile takeover. However, they have had a very hard time holding on to First Interstate customers. Wells Fargo customers have fled the bank in droves because of complaints of poor service, higher fees, long teller lines and irritating computer glitches. Another problem that customers faced was that they found out that many businesses wouldn't accept Wells Fargo checks. Reason? Wells Fargo doesn't issue Check Guarantee Cards. This has resulted in many customers taking their accounts to other competing banks. They, of course, have welcomed them with "open arms". Wells Fargo's appearance into the Arizona area has been less than smooth. When I recently relocated here from Jersey, I asked about the banks with the people I knew here. I came up with many reactions, but the one constant was "Don't go to Wells Fargo". So with the customer base shrinking, and the attitude of people when talking about Wells Fargo, I can't see how a bank that bases itself on consumer retail banking have anything but a hard time, for a while at least.

What would change my mind? Somehow Wells Fargo has to get the customers back to them. They have made a big push into "Supermarket Branches". Simply, they have opened a very small branch inside a supermarket and have it staffed by one person. These branches have longer hours than the regular branches and since they are in an existing structure, are cheaper to run. Customers can open and close accounts as well as apply for loans at hours that regular banks are closed. This seems to me to be a step in the right direction. But I think that Wells Fargo is going to have to do more to change the attitudes of its previous customers.

What's the key to this short working out? Fiscal Year Estimates have been lowered in the last 30 days by 2 of the 16 analysts that are following the stock. Earnings have been affected by the poor merging of WFC with First Interstate. On top of that, if the FED were to raise interest rates, that could also affect this stock.

What's my target price and why? WFC is priced at 263 1/2 per share. Looking at estimates from First Call, Fiscal year 97 estimates are for $15.27/share. Growth rate for the next five years is 11%. Using a YPEG I'm coming up with a price of $167.97 per share. Rounding that up brings us to $168.00 per share. That figures out to a nice little 36% return!

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* This column represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.

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