Bernstein Reaserch's Brad Hintz and his team today issues this buy recommendation --- oops., I mean outperform --- on Wells Fargo (U.S. Large Cap Banks). [His team also liked: CME (US Brokers), MetLife (MET, U.S. Life Insurance), and SYNOVUS FINANCIAL CORP (SNV, U.S. Mid-Cap Banks).]
"The Investment Case for WFC – We continue to like the franchise and earnings power story at WFC, as it begins to capitalize on organic investments and growth opportunities from the Wachovia acquisition, realize meaningful credit leverage over the next two years, and position itself for a dividend increase and/or resumption of buybacks in 2011. In the near term, we look for falling charge-offs and the release of excess reserves to be a meaningful driver of EPS growth and tangible book value per share expansion over the next two years. In the intermediate term, we believe the company should have expense leverage from the $5 billion in cost saves from the Wachovia merger, which have not benefited the bottom line yet due to ongoing merger expenses and mortgage workout costs. We expect net merger saves to create an 8% tailwind to noninterest expense in 2012. We model for WFC’s tangible book value per share to grow by 33% between 3Q10 and 2012, and expect the company to increase its dividend in 2Q11. Finally, for the long term, Wells has track record of fundamental outperformance, with both growth and profitability metrics beating peers over time. Against this backdrop, we believe the Wachovia acquisition offers a number of growth opportunities, including the ability to leverage its investment bank and retail brokerage network and to elevate the sales performance of the Wachovia branches to legacy WFC levels."