Wells Fargo's rally sparks KBW downgrade after it outpaces other bank stocks

By Steve Gelsi

Stock has outgained all other big banks except one with 15.2% year-to-date rise.

Wells Fargo & Co.'s stock (WFC) has rallied by 15.2% so far in 2024, with tailwinds from its efforts to reign in expenses, its stock buybacks and management of its balance sheet.

Investors have also been bidding up the stock on speculation that its asset cap imposed by the Federal Reserve after its scandals - such as when employees were found to have created fake accounts to meet goals - may be lifted in the next year or so.

Wells Fargo's 15.2% jump so far in 2024 has outpaced the gains of every major bank except Citigroup Inc.'s (C) 20% rise. Wells Fargo has also beaten out the 9.1% year-to-date rise by the S&P 500 SPX and the 5.8% increase by the KBW Nasdaq Bank Index BKX.

KBW analysts on Wednesday cited the stock's sprint in downgrading Wells Fargo to market perform from outperform, but said the company's prospects remain strong at least for the balance of the year.

KBW hiked its price target for the bank to $62 from $56 a share, and raised its 2024 profit estimate to $4.83 a share from its earlier view of $4.70 a share - higher than the FactSet consensus estimate of $4.80 a share.

Wells Fargo's stock rose by 0.4% on Wednesday.

KBW projected Wells Fargo's net interest income to remain strong in the second half of 2024, but said it may lag next year.

KBW analyst David Konrad said while KBW shares the enthusiasm around Wells Fargo getting its asset cap lifted, the firm sees some potential storm clouds after 2024 that could impact its stock price.

"We believe the stock is set for a consolidation phase given expectations for net interest income to underperform peers and tough in the first half of 2025," Konrad said.

Down the road, KBW expects the U.S. Federal Reserve to lift Wells Fargo's asset cap in 2025 as the bank's growth in bonds, credit cards and corporate loans continues.

Returns for the bank should improve in 2027, KBW said.

KBW's move to downgrade Wells Fargo marks at least the second analyst ratings cut by the bank in a week.

Citi analyst Keith Horowitz cut Wells Fargo to neutral from buy after a quick gain in its stock price this year relative to its expected performance, because the stock has been trading at a premium relative to its peers.

Also read: Wells Fargo's stock has reached a fair price after runup, analyst says

-Steve Gelsi

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03-27-24 1043ET

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