Goldman Sachs maintains buy rating on Wells Fargo stock

On Wednesday, Goldman Sachs analysts reaffirmed their Buy rating for Wells Fargo (NYSE:WFC) stock, maintaining a price target of $76.00. This decision follows the recent removal of an asset cap that had been imposed on the bank by the Federal Reserve in 2018. The bank, currently trading at a P/E ratio of ~13x and commanding a market capitalization of $246 billion, appears undervalued according to InvestingPro analysis.

The removal of the cap is seen as a potential catalyst for Wells Fargo, enabling the bank to regain lost deposit market share and fund growth across various business sectors. With current annual revenue of $77.25 billion and a return on equity of 12%, analysts at Goldman Sachs highlighted the potential for increased earnings driven by cost savings from reduced regulatory and legal expenditures. The bank maintains a healthy 2.12% dividend yield and has shown strong returns over the past five years, according to InvestingPro data.

Goldman Sachs estimates that Wells Fargo could experience a 14-19% increase in earnings per share, translating to a return on tangible common equity (ROTCE) uplift of approximately 200-280 basis points. This would result in ROTCEs ranging from 16.5% to 17.3% by 2026.

The analysts also noted the possibility for Wells Fargo to expand its balance sheet capacity over the medium term by issuing preferred equity, which could generate ROTCEs of 11-15% when deployed across its business lines.

In other recent news, Wells Fargo has seen significant developments that could impact its future trajectory. The Federal Reserve has removed the asset cap imposed on Wells Fargo in 2018, following the bank’s compliance with required conditions. This regulatory change, verified by an independent third-party review, signals a turnaround in Wells Fargo’s operations and governance. In response to this milestone, Wells Fargo announced a special one-time award of $2,000 to all full-time employees, recognizing their contributions during challenging times. Additionally, Wells Fargo has agreed to sell its rail equipment leasing division to a joint venture formed by GATX (NYSE:GATX) Corporation and Brookfield Infrastructure (NYSE:BIPC), aligning with its strategy to focus on core client services.

Evercore ISI analysts have raised Wells Fargo’s stock price target to $88 from $72, maintaining an Outperform rating, following the asset cap lift. The analysts anticipate a significant long-term earnings per share upside, estimating an 18% annual increase. Furthermore, Wells Fargo announced the termination of the Office of the Comptroller of the Currency’s 2015 agreements, marking the closure of multiple consent orders since 2019. This progress reflects Wells Fargo’s ongoing efforts to resolve historical regulatory issues and strengthen its compliance and governance standards. These recent developments highlight Wells Fargo’s strategic moves to enhance its financial standing and operational focus.

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