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Goldman Sachs upgrades Wells Fargo stock, downgrades Citigroup

Yahoo Finance Live anchors discuss a Goldman Sachs analyst's decision to upgrade Wells Fargo stock to Buy and downgrade Citigroup stock to Neutral.

Video Transcript


JULIE HYMAN: And lastly, let's talk about a couple of bank calls out from Richard Ramsden over at Goldman Sachs. He is upgrading Wells Fargo, and downgrading Citigroup. Interesting call here where-- let's get to the Wells Fargo here. It's going to buy from neutral according to him, and the price target is going up to $48 from $46.

He says it's an underappreciated earnings growth story because it's got best-in-class revenue upside, it's got efficiency improvement. So pretty interesting here. It also says-- he also says in a recessionary scenario Wells Fargo has less credit risk downside than peers. Basically, because it hasn't been doing as well in loan growth in recent years, so it's got a smaller portfolio.

And then on the flip-side, if you look at what he's saying about Citigroup here, he's saying it is more vulnerable in a recessionary scenario, which is really interesting because of the cards in its portfolio, that its card skew he says is the largest percentage of the loan book of any of its peers, which would then cause it to maybe have to you know, take some hits if people are not paying off their credit cards at the same rate or not taking out as much credit card debt in the case of a recession. So pretty interesting call here.

BRIAN SOZZI: Yeah. Richard's been covering this industry forever. So I'm hesitant to push back too much, but you don't normally see an upgrade on Wells Fargo. They have been putting up some very difficult quarters. I will note-- call this out too as part of Richard's call on Wells Fargo, "I see further idiosyncratic expense rationalization." What does that mean in plain English? Basically, he sees Wells Fargo cutting more expenses to help improve their bottom line in coming quarters.

BRAD SMITH: Yeah. And for Wells Fargo, it's been a continuous story over the past three, four years for them to really just get back into good graces with the consumer, with the actual end user of some of the products, the services financially that they offer. And so it's now a broader question of have they done enough to turn a corner and really hold on to some of the momentum that even the analysts of the banks would look at and say, OK, there's possibility for growth here, and so that's a longer-term question. And strategically, there's been a lot of effort from Wells Fargo, it's just this question of is that enough to satisfy the consumer.

BRIAN SOZZI: We'll see in a couple of weeks when earnings hit the tape.