First-quarter bank earnings are rolling in, and it's increasingly looking like big banks are coming under pressure from higher interest rates, as they have gradually had to lift interest rates on deposits to stay competitive.
In light of those challenges, Wells Fargo (WFC -0.33%) predicted a 7% to 9% decline in net interest income for the year. However, one analyst sees an upside to the stock after a Q1 earnings report that included a solid beat on the top and bottom lines, even though the stock fell on the report.
On Monday, Argus Research lifted its price target on the stock from $57 to $66 and maintained a buy rating. That implies an 18% upside over the next 12 months.
More upside seen for Wells Fargo
The analyst noted that Q1 earnings topped estimates. Wells reported revenue up 0.6% year over year to $20.9 billion, well ahead of expectations at $18.6 billion. Earnings per share ticked down from $1.23 to $1.20 but were still well ahead of the consensus at $1.
Argus noted the expected decline in net interest income this year but said it was bullish on the stock as it expects strong fee revenue to counteract that, forecasting an overall revenue decline of 2%.
Can Wells Fargo keep gaining?
The biggest boost to Wells Fargo's performance lately hasn't been its internal results, but the end of a consent decree in February that was levied on the company in the wake of the 2016 phony account scandal. The stock soared on the news, and Wells Fargo could keep climbing if it continues to get back in the good graces of the government, which it seems to be on track to do.
The business environment looks less certain. It's unclear if the Federal Reserve will lower interest rates as it has forecast it would. Still, the economy looks robust enough to avoid recession, which is the bigger concern for a commercial bank. If the economy remains stable, an 18% gain is within reach for Wells, especially as it repairs its reputation with regulators.
