Wells Fargo: 3 Reasons Stifel Financial Presents A Compelling Opportunity

Stifel Financial Corp (NYSE: SF) reported a third quarter profit of $66.5 million after the close Oct. 30.

The Analyst

Wells Fargo's Christopher Harris upgraded Stifel Financial from Market Perform to Outperform and increased his price target for the stock from $56 to $64 in a Friday note.

The Thesis

Harris gave three reasons for the upgrade:

• The shift of the business model mix toward wealth management and banking. Stifel is shifting toward fee revenues versus commission revenues, the analyst said. Investors generally place higher valuation multiples on wealth business, Harris said. (See Harris' track record here.)

• There is a potential regulatory catalyst as Congress considers bank reform. One of the potential changes is a raising of bank asset thresholds for regulatory purposes, and if that happens it is likely going to accelerate M&A among small- and medium-sized banks, Harris said. Wells Fargo is hopeful that overhangs on MiFID II and the DOL Fiduciary rule will fade in 2018, he said.

• The valuation is inexpensive versus historical norms. Harris raised his 2017, 2018 and 2019 EPS estimates from $3.44, $3.85 and $4.15 to $3.45, $4 and $4.40, respectively. The new estimate reflects higher revenues from wealth management and investment banking, but it factors only one additional 25 bps Fed Fund rate increase and no tax reform, Harris said. In the event of tax reform and two additional rate hikes, Stifel's pro forma EPS could be $5, the analyst said.

The Price Action

The stock broke out to the upside Thursday, above its resistance at $54.73, and closed up 3.36 percent at $58.14.

Latest Ratings for SF

Dec 2017	Wells Fargo	Upgrades	Market Perform	Outperform
Oct 2017	Nomura	Maintains		Neutral
May 2017	Nomura	Downgrades	Buy	Neutral

View More Analyst Ratings for SF
View the Latest Analyst Ratings

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