Does Wells Fargo's Stock Deserve a Deeper Look?

Over the past 12 months, shares of Wells Fargo (NYSE: WFC  ) have handily outperformed the S&P 500, but come up short of the KBW Bank Index, a composite of 24 bank stocks that serves as a benchmark for the bank industry. The total return of 29% puts the San Francisco-based lender roughly nine percentage points above the former index, and eight percentage points below the latter. Given these mixed signals, can investors reasonably expect it to continue higher going forward?

WFC Total Return Price Chart

According to the collective insight of banking analysts, the answer to this question is yes. The median target price of the 30 analysts surveyed by Standard & Poor's Capital IQ is $46 a share, with a high estimate of $54 and a low of $39. As of the time of writing, Wells Fargo traded for approximately $43 per share. Consequently, if the analysts are to be believed, which is admittedly a big "if," then there's an anticipated upside of 7%.

Metric

Wells Fargo

KBW Bank Index

Price to Tangible Book Value

1.93

1.82

Price to Book Value

1.51

1.25

Price to Earnings

11.60

15.21

Source Standard & Poor's Capital IQ.

The modest upside is largely a result of Wells Fargo's current valuation. Thanks to its reputation for prudent risk management and robust earnings growth, its shares trade for 1.93 times tangible book value and 1.51 times book value. These are 6% and 21%, respectively, above the average of the 24 banks in the KBW bank index, leaving seemingly little room for dramatic outperformance relative to its peers.

At the end of the day, this is a quick and rudimentary analysis that shouldn't be relied upon singularly when deciding whether to buy or sell shares of Wells Fargo. What it shows us instead is that a deeper look at the megabank's shares may very well be in order given its dominant position in the industry and the, at least at this stage in the analysis, comparatively underwhelming opportunity for share price appreciation.

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