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Investing.com -- RBC Capital Markets upgraded Wells Fargo (NYSE:WFC)&Co to "Outperform," saying the recent decline in the bank’s stock presents a good entry point for investors.
RBC expects Wells Fargo to benefit from regulatory relief and improved profitability in the coming years. Wells Fargo has progressed in resolving regulatory issues under CEO Charlie Scharf, as per RBC.
Since his arrival in 2019, the bank has reduced the number of outstanding regulatory orders from 12 to four.
The key Federal Reserve restriction, which limits the bank’s asset growth, could be lifted in 2025, allowing for expansion.
“Our Outperform rating is informed by an attractive valuation given recent share price decline; demonstrated progress on satisfying regulatory issues; a strong return on average tangible common equity target of 15%,” analyst at RBC said.
Once the asset cap is removed, Well Fargo would be able to execute its growth strategy and reach its 15% return on tangible equity target.
Shares of Wells Fargo have declined in recent weeks, but RBC sees the pullback as an opportunity for long-term investors, citing the bank’s improving outlook.
Even with the recent weakness, RBC maintained its 2025 and 2026 earnings per share estimates at $5.85 and $6.75, respectively, and kept its price target at $80.
The bank's cost-cutting measures, including workforce reductions and branch closures, have improved profitability, according to RBC.
Wells Fargo has also focused on growing fee-based businesses such as investment banking and wealth management, which do not count toward its asset cap.
RBC noted that Wells Fargo’s strong consumer deposit base gives it a competitive funding advantage, especially in a high-interest-rate environment.
The firm expects further capital returns to shareholders through dividends and stock buybacks once regulatory concerns ease.
