While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Wells Fargo (WFC -1.26%) gained slightly in pre-market trading today after Nomura Securities initiated coverage on the banking giant with a buy rating.
So what: Along with the bullish call, analyst Bill Carcache planted a price target of $60 on the stock, representing about 20% worth of upside to yesterday's close. So while contrarians might be turned off by Wells' price strength over the past year, Carcache's call could reflect a sense on Wall Street that the bank's growth tailwinds give it plenty of room to run.
Now what: According to Nomura, Wells' risk/reward trade-off is particularly attractive at this point. "If the economic recovery remains muted and loan growth modest, we would expect outperformance to come from a combination of fee income and expense control, supplemented by capital return," said Carcache. "If the recovery accelerates and loan growth improves, WFC's spread income should gap out as yields rise and margins expand on its large, low-cost, sticky deposit base." When you couple that upbeat outlook with Wells' market-lagging P/E of 12, it's tough to disagree with Nomura's bullishness.
