Wells Fargo shares took a hit on Monday morning during pre-market trading after Raymond James downgraded the stock from “Outperform” to “Market Perform,” citing limited upside following a sharp rally in recent weeks.
Wells Fargo shares dipped 0.9% in premarket trading following the downgrade.
The megabank, with a market capitalization of $272 billion, has seen its shares climb more than 43% over the past 12 months, buoyed most recently by the US Federal Reserve’s decision to lift a long-standing asset cap.
Raymond James analyst David Long said the recent surge in Wells Fargo’s stock, including a 10.5% gain since the Fed lifted the cap on June 3, had left the stock fairly valued.
“We see lower upside potential for Wells Fargo shares relative to some of its peers despite our favourable fundamental outlook,” Long said.
“While we remain bullish on Wells Fargo’s growth prospects and continued profitability improvement, we believe upside to its EPS estimates is now appropriately reflected in its premium valuation,” he said.
Long, who had previously rated Wells Fargo a “Strong Buy,” set a price target of $84 for the stock—just above its recent closing high of $83.60.
US Bancorp upgraded on shift in sentiment toward regional banks
Investor attention may soon shift toward more attractively priced regional banks, as megabanks like Wells Fargo, JPMorgan Chase, Bank of America, and Citigroup are all trading near their 52-week highs, Raymond James analyst David Long noted.
So far in 2025, each of these large-cap banks has posted double-digit gains.
Citigroup leads the group with a 26% rise, followed by a 23.5% increase for JPMorgan Chase, an 11.3% advance for Bank of America, and a 19% climb for Wells Fargo.
US Bancorp, a Minneapolis-based regional bank, was upgraded by Raymond James to “Strong Buy,” with an increased price target of $57, up from $51.
“We have increasing confidence that the bank will reach its targeted medium-term profitability,” Long said.
“We expect such profitability improvement to shift investor sentiment on this ‘show me’ story to the positive side.”
US Bancorp shares rose 0.6% in early trading Monday, outperforming both the Financial Select Sector SPDR ETF and the broader KBW Nasdaq Bank Index.
The SPDR S&P Regional Banking ETF is up just 4.8% this year, compared to double-digit gains by large-cap banks such as JPMorgan Chase and Citigroup.
Wells Fargo eyes long-term gains after cap removal
The Fed’s recent removal of a $1.95 trillion asset cap imposed in 2018 marks a pivotal moment for Wells Fargo.
The cap, introduced in the wake of the bank’s fake-accounts scandal, had restricted its ability to grow deposits and expand operations.
“This is a potential turning point in Wells Fargo’s growth trajectory,” analysts at TD Cowen said last month, adding that the move could reignite revenue growth, especially in areas such as commercial deposits and trading.
Citigroup’s banking analyst Keith Horowitz noted the most significant near-term benefit would likely be on the deposit side.
“There have been commercial deposits they’ve had to turn away due to the asset cap,” he said.
Trading, already a growth engine for Wells Fargo, could also benefit.
Trading fees grew fivefold between 2019 and 2024, rising from $1 billion to $5 billion. Horowitz believes the lifting of the cap may act as “an additional tailwind” to this momentum.
Still, Horowitz cautioned that the removal of the cap may not translate into an immediate boost in lending.
“The asset cap has not been the main limiting factor in terms of loan growth,” he said, citing softer loan demand amid an uncertain economic outlook.
Looking ahead for WFC
While the downgrade from Raymond James may dampen short-term investor enthusiasm, most analysts remain bullish on Wells Fargo’s prospects.
According to FactSet, 18 out of 27 analysts still rate the stock a “Buy.”
The asset cap removal has removed a key regulatory overhang, and with strong trading operations and renewed deposit capabilities, Wells Fargo could be well-positioned for long-term growth.
However, with the stock already pricing in much of this optimism, analysts and investors alike may now turn their attention to regional banks, where valuations remain more compelling and the path to profitability less fully reflected in current prices.
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