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Wells Fargo: Buy or Sell?

Analyst showdown: Goldman Sachs called Wells Fargo a buy, placing a $35 price target on the stock, while UBS told its clients to sell, saying WFC would drop to $20. So who’s right?

Cramer sided with Goldman, and here’s why:

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The crux of the problem, he found, was that the two firms disagreed on the profits that Wells Fargo could earn. UBS expects loan losses to cut into earnings power, but Goldman doubts they will hurt all the much, especially because of the returns Wells’ will generate from its deposit base. UBS predicts the bank will have trouble paying back its TARP loans, Goldman says it won’t. And UBS believes that the Wachovia acquisition will weigh Wells Fargo down, while Goldman thinks it will work out well.

For these reasons, UBS says Wells will earn just $2 a share, compared with the $4.65 that Goldman estimated. Cramer put the figure at closer to $4 than $2, citing Wells’ potential to write-up the loan losses that it had previously written down. He also thinks that the company will earn enough money to pay back its TARP loans, without needing to hold a secondary offering. And in the end, the extra earnings will strengthen the bank’s capital position. He put a mid-$30s price target on WFC, based on that $4.65 earnings power.

“I think UBS is way too negative,” Cramer said, “and will miss the next big move” in Wells Fargo.

Cramer's charitable trust owns Wells Fargo.

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