Why Mike Mayo Continues To Be Bullish On Wells Fargo

michael mike mayo clsa analyst
Mike Mayo

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CLSA analyst Mike Mayo continues to be bullish on Wells Fargo.  This morning, the bank announced quarterly earnings and revenue that exceeded expectations.  Mayo notes that financial performance was bolstered by an increase in margin and strength in mortgage banking.  From his note to clients this morning:There is a degree of noise with the balance sheet (loans purchased and reclassified) and income statement (other fees and expenses both up) but, when the dust settles, Wells Fargo should have about the best revenue growth this quarter. We continue to recommend the stock as a core holding given better revenue growth combined with lower strategic, balance sheet and earnings risk than others.

He’s maintaining his outperform rating on Wells Fargo.  His 12-month price target is $32, which he set on January 5.

Mayo is the banking analyst who became controversial only because he did what few other analysts would during the heyday of credit: he put sell ratings on banks.

A few days ago, Mayo did an interview with Money Magazine in which he discussed his new book as well as the state of the banking system.  At the end of the interview, he identified two of his favourite banks:

Mayo puts a big emphasis on quality, whether you’re looking at a bank stock or anything else, for that matter.

“In banks, I would go with Wells Fargo or PNC,” he says. “Those are the higher-quality banks with consistent management and strategy. They stayed away from Europe and didn’t blow up during the crisis.”

Earlier this morning, Wells Fargo announced EPS of 73 cents, which beat the consensus estimate of 72 cents.  Revenue fell 4.1% to $20.6 billion, but was better than analysts’ expectations.  One of Wells Fargo’s main drivers of outperformance relative to its competitors is lack of exposure to Europe, which is exactly what Mayo cited.

Wells Fargo shares are trading up this morning, while Citigroup it down.  Citigroup announced this morning that they missed analysts’ estimates by a wide margin.