Wachovia Corp. was upgraded Monday by an analyst who says a recent selloff in its shares is overdone.
Kevin Fitzsimmons of Sandler O'Neill & Partners LP raised his rating on the $542 billion-asset Wachovia to "buy" from "hold." He pointed out in an accompanying note that the Charlotte banking company's shares have fallen more than 12% since May 7, when it announced it was buying Golden West Financial Corp., a thrift company in Oakland, Calif.
Wachovia is trading at a 15% discount to the average price-to-earnings multiple of regional banks in the Standard & Poor's 500. The combination of a low valuation with an almost 4% dividend yield "represents an attractive entry point" for investors, Mr. Fitzsimmons wrote.
The $25.5 billion that Wachovia agreed to pay is a 15% premium over Golden West's share price.
Analysts criticized the deal for reasons other than the price. They also expressed concern about Golden West's focus on option adjustable-rate mortgages and Wachovia's ability to stamp its cross-selling culture on the California company.
At least four analysts, including Mr. Fitzsimmons, downgraded the stock within a couple of days of the Golden West announcement, though two upgraded it.
In his note Monday, Mr. Fitzsimmons said Wachovia's stock should emerge from the "penalty box" a company commonly occupies right after announcing a large deal.
"The market seemed to price in the worst case for buying Golden West," Mr. Fitzsimmons said in an interview. "Enough time has elapsed" that investors "can come in and take a fresh look at this stock now and realize that that deal might not turn out to be as negative as initially thought."
Robert Patten, a senior bank analyst at Regions Financial Corp.'s Morgan Keegan & Co., rates Wachovia "outperform," which is Morgan Keegan's equivalent to a "buy." Mr. Patten did not change his rating after the Golden West deal was announced.
Investors "appear to be getting more comfortable with the question of risk" associated with the deal, Mr. Patten said.
However, some analysts remain cautious about how the two companies will mesh and about the buyer's ability to obtain revenue growth "the Wachovia way" through the Golden West platform, he said.
Nancy Bush, an independent analyst at NAB Research LLC, also has a "buy" on Wachovia. She said its Golden West deal reminded her of Bank of America Corp.'s 2004 acquisition of FleetBoston Financial Corp. B of A paid a rich price for access to slow-growth markets in New England, but the execution was "excellent" and the integration "has gone much better than anybody expected" because of what B of A brought to the Fleet customer, Ms. Bush said.
Wachovia could likewise bring enhanced value to Golden West customers, she said. "I really don't have a lot of worries."Wachovia declined to comment. Its shares closed up 1% Monday.
