Wells Fargo's efforts to improve profitability and address regulatory issues position it as an attractive buying opportunity. The anticipated lifting of a regulatory order that limits its asset growth adds to the bank's appeal. RBC Capital Markets has upgraded Wells Fargo's stock from 'sector perform' to 'outperform', setting a target price of $80.
Notably, the bank's shares have experienced a nearly 13% decline in the past month, presenting a favorable entry point for investors. The recent selloff is seen as a chance to invest, particularly given progress on regulatory issues and strong capital levels, as highlighted by RBC co-Head of Global Financials Research, Gerard Cassidy.
Cassidy noted that once the Federal Reserve lifts the asset cap imposed in 2018, Wells Fargo is expected to implement its growth strategy to meet its profitability targets. The Fed's initial order required the bank to enhance its governance and risk management processes, which underscores the importance of these improvements.
An earlier Reuters report suggested that Wells Fargo might have its asset cap lifted by 2025. Cassidy pointed out that profitability-enhancing strategies, such as reducing balance sheet size or focusing on 'light' balance sheet businesses, might yield better results for shareholders than growth-focused strategies, based on the current phase of the economic cycle.
To navigate the constraints of the asset cap, Wells Fargo has had to adopt various strategies aimed at boosting profitability, ensuring it is well-prepared once the cap is lifted. Additional factors contributing to the rating upgrade include Wells Fargo's robust business mix and strong credit metrics.
RBC has maintained its earnings per share estimates for 2025 and 2026 at $5.85 and $6.75, respectively. As of current trading, the stock price stands at $69.00, with a slight change of +0.06, or a +0.09% increase..