After a horrid start to the year, investors were again optimistic about the banking industry. The economy was looking up, the prospect of a rate hike was seemingly on the horizon, and loan demand seemed likely to pick up thanks to a robust housing sector.
But with recent trends, all of that has been called into question, making companies in the banking sector weak choices in this environment. After all, rate hike possibilities seem dashed thanks to the Brexit and a return of oil worries, while a low benchmark rate isn’t making it any easier for banking companies lately.
The Major Regional Banking sector actually has a Zacks Industry Rank in the bottom 20% overall, so there are several companies in the space that investors should avoid now. But in particular, a big name in this space should be avoided these days, Wells Fargo (WFC – Analyst Report) .
Why Should You Avoid WFC Now?
Thanks to recent trends and fresh concerns following WFC’s recent miss in earnings season, analysts have been almost universally lowering expectations for Wells Fargo’s earnings potential in the near term. For the next quarter, we have seen ten estimates go lower compared to zero higher in the past thirty days, while we have seen a similar trend for the next year time frame. Analysts certainly aren’t liking WFC’s prospects in this environment:
But it isn’t just the amount of revisions, as WFC is also seeing these decreases in expectations hit the consensus estimate too. All periods that we study see a lower consensus estimate than what we saw just thirty days ago, while the next year time period has been particularly poor, sliding nearly five percent in the time period.
This continues a trend of slashing estimates for WFC stock which has been taking place for more than a few months now. No wonder shares are now a Zacks Rank #5 (Strong Sell), and why this company is ranked in the bottom five percent of all stocks that we cover.
That’s Not All…
If that wasn’t enough of a reason to avoid WFC stock, investors should also consider some of the fundamental measures for this company. WFC currently has an overall grade of ‘D’ for its fundamentals, with weakness in the growth and momentum categories especially dragging down Wells Fargo’s score.
This isn’t that surprising when you consider that the company is projected to grow earnings less than the industry average, while it is projected to post slower sales growth too. And from a momentum look, the company has lost more than the industry average from a 52 week look, while it is trailing from a four week and 12 week inspection too.
Given the weak overall picture in the regional banking world, there are few replacement choices which are good selections right now. In fact, just a single stock out of 16 in this industry has a rank above ‘hold’, Comerica (CMA – Analyst Report) .
This Dallas-based company was just upgraded to ‘buy’ territory within the past week too, so this is a recent change for this regional bank. But with a double digit percentage earnings surprise last quarter and rising earnings estimates, this seems like the best bet for investors in this troubled sector right now.
But for more on sluggish stocks and how to trade them, make sure to check out our recent podcast on the topic below: