Wells Fargo Stock Touched a New 52-Week High: Is More Upside Left?

Core Viewpoint - Wells Fargo's shares reached a new 52-week high of $94.68, driven by optimism regarding its entry into the options clearing business and the upcoming removal of the regulatory asset cap in June 2025, which has limited its balance sheet since 2017 [1][8]. Stock Performance - Over the past year, Wells Fargo's stock has increased by 33.3%, while the industry has grown by 37.5%. Comparatively, Bank of America and Citigroup's stocks rose by 27.1% and 72.5%, respectively [3]. Market Conditions - The strength in Wells Fargo's stock is also attributed to broader market conditions, with the U.S. economy growing above expectations in Q3 2025 and a positive outlook for 2026, enhancing investor sentiment in banking stocks [2]. Growth Drivers - The removal of the asset cap in June 2025 will allow Wells Fargo to expand its balance sheet, grow deposits, increase loan balances, and enhance securities holdings, unlocking its operational potential [7][8]. - The regulatory relief will enable greater flexibility in scaling fee-based businesses, supporting revenue diversification and long-term growth [8]. - Management has raised the medium-term return on tangible common equity (ROTCE) target to 17%-18% from 15%, indicating improved profitability prospects [9]. Business Simplification - Wells Fargo is streamlining operations by exiting non-core businesses, such as the sale of its rail lease portfolio and non-agency third-party commercial mortgage servicing business, to focus on higher-return areas [10][11]. - These simplification efforts are expected to lower operational risk and improve capital efficiency [12]. Interest Income and Cost Efficiency - Wells Fargo's net interest income (NII) has shown a three-year CAGR of 10%, although it declined by 1.9% to $35.15 billion in the first nine months of 2025 due to elevated funding costs [12]. - The Federal Reserve's interest rate cuts are expected to stabilize funding costs and improve loan demand, supporting NII growth [13]. - The company has been actively pursuing cost-cutting measures, including branch closures and workforce reductions, aiming for nearly $15 billion in gross expense savings by the end of the year [14][16]. AI Initiatives - Wells Fargo is implementing a phased AI rollout to enhance productivity and customer service, with a partnership with Google Cloud to deploy AI tools [19]. - AI adoption has already increased productivity by 30%-35% within engineering teams, and the bank plans to integrate AI into commercial banking platforms [20][21]. Valuation Analysis - The Zacks Consensus Estimate for Wells Fargo's earnings indicates a rise of 16.7% for 2025 and 11.9% for 2026, with upward revisions over the past 60 days [22]. - Currently, Wells Fargo's stock trades at a trailing P/E ratio of 13.50x, lower than the industry's 15.32x, indicating it may be undervalued [23][24]. Strategic Outlook - The removal of the asset cap, ongoing business simplification, and disciplined expense management position Wells Fargo for improved earnings and margin expansion [27][28]. - The bank aims to optimize its common equity tier 1 (CET1) ratio to 10-10.5%, enhancing capital usage and returns [28]. - Overall, Wells Fargo presents a favorable long-term investment opportunity [29].