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On Tuesday, JPMorgan analysts reiterated their Neutral rating on Wells Fargo (NYSE:WFC) stock, maintaining a price target of $73.50. The decision follows the Federal Reserve’s recent move to lift the asset cap on Wells Fargo, a change that had been anticipated since a milestone in the process was reported in the media last September. Currently trading at $75.65 with a P/E ratio of ~13x, InvestingPro analysis suggests Wells Fargo is undervalued, with analyst targets ranging from $65 to $90.
The removal of the asset cap is expected to alter Wells Fargo’s earnings profile, with trading and investment banking poised to become significant growth areas. In recent years, the company has expanded its loan portfolio in targeted areas such as credit cards, although growth in this segment has slowed. Recent quarters have seen an increase in commercial and industrial loans, particularly to non-bank financial entities. With a market capitalization of $246 billion and a solid dividend yield of 2.12%, InvestingPro data reveals the bank has maintained dividend payments for 55 consecutive years.
Trading assets at Wells Fargo have shown significant growth, with a 16% increase in 2024. Repo financing has also nearly doubled, rising by approximately $43 billion from previous lows. Additionally, corporate and investment banking trading revenues have surged almost 50% since 2021. The bank’s total revenue stands at $77.25 billion for the last twelve months, with analysts forecasting 7% revenue growth for the current fiscal year.
JPMorgan analysts have incorporated the anticipated benefits of the asset cap lift into their earnings estimates for 2025 and 2026, initially assuming the change would take effect from July 1, 2025. As Wells Fargo seeks to expand its trading revenues, including in financing, it will be crucial for the bank to manage risk and maintain strong controls.
Wells Fargo is currently the leading lender to non-bank financials, a position it aims to strengthen with the newfound flexibility provided by the removal of the asset cap.
In other recent news, Wells Fargo has garnered attention following the Federal Reserve’s decision to lift the asset cap imposed in 2018, a move seen as pivotal for the bank’s growth prospects. This development has led to a series of analyst updates, with Barclays (LON:BARC) maintaining its Overweight rating, citing the potential for increased earnings per share (EPS) through expanded commercial deposits and loans. Morgan Stanley (NYSE:MS) also raised its price target for Wells Fargo to $87, highlighting expectations of accelerated loan and deposit growth, alongside reduced expenses. Meanwhile, Keefe, Bruyette & Woods increased their price target to $80, acknowledging the significance of the asset cap removal but maintaining a Market Perform rating due to a low-growth environment.
Citi analysts kept a Neutral rating with a $78 price target, noting that while the asset cap removal is positive, it was largely anticipated and may not immediately impact loan growth or expense efficiencies. Goldman Sachs reaffirmed its Buy rating, emphasizing the potential for increased earnings driven by cost savings and a return on tangible common equity uplift. The analysts at Goldman Sachs project a 14-19% increase in earnings per share, with ROTCEs ranging from 16.5% to 17.3% by 2026. These recent developments reflect the broader optimism among analysts regarding Wells Fargo’s strategic initiatives and financial outlook.
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