Wells Fargo stock rating cut to Market Perform by Raymond James

Investing.com - Raymond (NSE:RYMD) James downgraded Wells Fargo (NYSE:WFC) from Outperform to Market Perform on Monday, citing limited upside potential after the stock’s recent rally. The banking giant, with a market capitalization of $272 billion, has delivered impressive returns with a 43.6% gain over the past year.

The bank’s shares have climbed 15.3% since Raymond James raised its earnings estimates following the removal of Wells Fargo’s asset cap, reaching the firm’s target price. InvestingPro analysis suggests the stock remains slightly undervalued despite the recent rally, with additional insights available in the comprehensive Pro Research Report.

Wells Fargo stock posted a 52-week high on Thursday, July 3, and now trades at 12.4 times Raymond James’ 2026 earnings per share estimate, representing a premium to its peer group average and median of 11.0 times.

The current valuation exceeds that of all peers except JPMorgan Chase (NYSE:JPM), which trades at 14.9 times consensus 2026 earnings estimates.

Raymond James maintains its bullish outlook on Wells Fargo’s growth prospects and continued profitability improvement, but believes the upside to earnings estimates is now appropriately reflected in the premium valuation.

In other recent news, Wells Fargo announced expectations for its stress capital buffer (SCB) to decrease to the minimum 2.5% following the Federal Reserve’s 2025 stress tests. The bank also plans to increase its third-quarter 2025 common stock dividend by 12.5%, pending board approval. Raymond James raised its price target for Wells Fargo from $78 to $84, maintaining a Strong Buy rating, citing potential positive impacts from the removal of the asset cap. S&P Global Ratings upgraded Wells Fargo’s outlook to positive from stable, reflecting improvements in governance and risk management after the asset cap lift.

Wells Fargo’s Chief Financial Officer indicated that consumer loan growth might remain muted or decline, while commercial loan growth remains uncertain. Despite this, the bank sees growth opportunities in investment banking and other business areas. The Federal Reserve’s stress test results showed that major banks, including Wells Fargo, have strong capital positions to withstand economic downturns. Wells Fargo’s adjusted preprovision net revenue increased to nearly $30 billion in 2024, with a return on tangible common equity reaching 13.4%. The company’s balance sheet and liquidity metrics remain robust, supported by the removal of the asset cap.

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