Getting More Positive on Buffett's Favorite Bank (WFC, BRK-A)

Banking analysts came out of the cracks in the floor this morning to be positive on Wells Fargo & Company (NYSE: WFC).  We have seen positive calls from several different firms.  Dick Bove of Rochdale Securities has upgraded Wells Fargo & Company (NYSE: WFC), which is the favorite bank and largest bank holding of Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B).  We have also seen a relatively positive rating action out of Fitch Ratings along with Keefe Bruyette & Woods and Stern Agee. FBR raised its rating to Outperform.

Bove has raised his rating on Wells Fargo up to a buy from neutral/hold, but the target was merely bumped up to $30.00 from $29.00. Bove’s optimism is on the access to extremely cheap capital where the bank has increased deposits at the time it has reduced risk on its balance sheet. In short, Bove sees these near-zero cost deposits (bank liabilities) growing faster than other aspects of the balance sheet.  Leverage, without official leverage.

Fitch Ratings affirmed its long-term and short-term Issuer Default Ratings at “AA-” and at “F1+” and maintained its outlook as being “Stable.”  In short, no new reviews are coming from Fitch.  Fitch noted Wells Fargo’s solid capital level, large distribution network, and also noted that core deposit profile as areas of strength along with retained earnings growth and shrinking the balance sheet.  Again, it sounds like virtual leverage with no official leverage.  Fitch noted that it is not immune to macroeconomic pressure, but balanced that with the notion that it has fared better than peers.  It even noted that the integration of Wachovia seems to be going smoother than original expectations.

FBR Capital Markets raised its rating to Outperform from Market-Perform on credit stabilization and the price target is $31.00 as its credit losses are stabilizing and as it has less regulatory headwinds compared to peers.

Keefe Bruyette & Woods raised estimates on improving credit trends.  It hiked 2010 targets to $2.45 EPS from $2.30, and reiterated its Outperform rating and $36.00 price target.  Sterne Agee also raised 2010 targets up to $2.33 EPS from $2.02 EPS; it also reiterated a BUY rating and $37.00 price target.

Wells Fargo would be well-known with or without Warren Buffett and Berkshire Hathaway.  The issue is that Wells Fargo has been raised as a stake on several occasions as one of Buffett’s largest equity holdings.  Wells Fargo & Co. was roughly 319.5 million shares at Buffett’s latest reporting date.  While that was the same as the quarter before, Buffett had raised that stake 313.3 million shares a quarter before, 302 million shares before that, and above the 290 million shares before that.  At today’s price, the Berkshire Hathaway stake is worth some $8.6+ billion.  Berkshire Hathaway is also the largest listed holder of Wells Fargo’s common stock.

Wells Fargo shares are up 3.8% at $27.05, and the 52-week range is $23.17 to $34.25.

JON C. OGG