Wells Fargo upgraded to Outperform at Wolfe on asset cap liftoff potential

Wolfe Research upgraded Wells Fargo (NYSE:WFC) to Outperform from Peer Perform as the market doesn’t appear to be pricing in the potential for its asset cap to be lifted.

Analyst Steven Chubak sees downside risk to meeting its EPS consensus, which applies across Wolfe’s rate-sensitive coverage. However, that’s reflected in its price/earnings multiple, with shares trading at 1.0x-turn discount vs. Wolfe’s target P/E.

Chubak estimated that the eventual removal of its asset cap imposed by the Federal Reserve in 2018 “could boost EPS power by ~8%, supporting a path to >$6 normalized EPS power.”

Wells Fargo (WFC) stock rose 1.3% in Tuesday premarket trading.

“Wolfe does not anticipate the asset cap getting lifted until at least 2025, but either way, upside does not appear to [be] reflected in consensus or shares,” the analyst wrote.

In late September, Bloomberg News reported that Wells Fargo (WFC) submitted a crucial review of its risk and control overhauls to the Federal Reserve, representing an important step to the asset cap, which limits the bank’s growth.

Chubak’s Outperform rating contrasts with the SA Quant rating and the average SA Analyst rating, both at Hold, and aligns with the average Wall Street rating of Buy.