Wells Fargo & Co (NYSE:WFC) stock rose 0.45% (As on October 9, 11:50:27 AM UTC-4, Source: Google Finance) after the company received an upgrade from Wolfe Research, moving from a Peer Perform to an Outperform rating. The firm also set a new price target for the bank’s shares at $65.00. The adjustment arrives amid expectations of challenges in the rate-sensitive financial sector, yet Wells Fargo’s current valuation is seen as incorporating these risks adequately.
Wells Fargo’s stock is currently trading at less than 10 times Wolfe Research’s estimated earnings per share (EPS) for 2026, which is more than a one-time turn discount compared to the target price-to-earnings (P/E) ratio. This discount is considered the most significant among the bank and broker stocks covered by Wolfe Research, excluding LPL Financial Holdings Inc. The firm sees the potential for Wells Fargo’s earnings to increase if the asset cap imposed by regulators is lifted, which could lead to approximately an 8% boost in EPS power.
Recent developments suggest that Wells Fargo is progressing towards meeting regulatory requirements, as indicated by the submission of a third-party review to the Federal Reserve. Despite the Office of the Comptroller of the Currency’s (OCC) enforcement actions raising concerns over delays in lifting the asset cap, Wolfe Research does not expect the cap to be removed until at least 2025. However, the firm believes that the potential benefits of the cap being lifted are not yet factored into consensus estimates or the bank’s share price.
Wells Fargo’s journey toward regulatory compliance and the anticipated removal of the asset cap are seen as positive steps that could result in an increase in the bank’s normalized EPS to over $6. The projection is based on the premise that the asset cap’s removal will provide Wells Fargo with an opportunity to expand its assets and grow earnings accordingly. Wolfe Research’s upgraded rating reflects a belief that the market has not fully appreciated this potential upside in the bank’s stock valuation.
Meanwhile, the company continued to see growth in the fee-based revenue offsetting an expected decline in net interest income. The investments the company have been making allowed them to take advantage of the market activity in the quarter with strong performance in investment advisory, trading, and investment banking fees. Consumer, Small and Business Banking was down 5% driven by lower deposit balances and the impact of customer migration to higher yielding deposit products including promotional savings and time deposit accounts. Home Lending was down 3% reflecting lower net interest income on lower loan balances.