UBS analyst Saul Martinez recently downgraded Wells Fargo (WFC 0.96%) from a buy rating to neutral, saying that the large U.S. bank now trades at a premium to rivals in some regards.
According to Martinez's model, Wells Fargo now trades at 13.9 times his 2022 earnings estimates for the bank, which is higher than most banks he covers. Its shares are up nearly 58% year to date.
In the same research note, Martinez also lifted Wells Fargo's price target from $40 to $47, although the bank traded at $46.86 per share before the market opened today.
Martinez's earnings estimates have total revenue at the bank dropping 2% this year and then increasing 2.6% in 2022. He sees the bank generating a return on tangible common equity (ROTCE) of 9.6% in 2022.
Still, Wells Fargo only trades at about 140% of tangible book value (equity minus intangible assets and goodwill), which is considerably below peers like Bank of America (BAC 1.54%) and JPMorgan Chase (JPM 0.49%).
The bank's earnings will also likely continue to be depressed until the $1.95 trillion asset cap Wells Fargo has been operating under since 2018 -- as punishment for its phony-accounts scandal -- is removed. I expect JPMorgan and Bank of America will be generating ROTCEs well above 9.6% in 2022.
But Martinez said that it is still quite unclear when the Fed will remove the asset cap, which has cost Wells Fargo billions in profits over the years because it prevents the bank from growing its balance sheet.