Wells Fargo & Company
WFC is still priced like a slow, post-cap-removal cleanup story at 12.8x FY2025 EPS, while the business is now showing faster loan and deposit growth, stable FY2026 NII guidance, and improving earnings power that supports a move toward $105.5.
Wells Fargo is no longer just a rehabilitation story. The market still prices it partly that way, but the actual operating data now show a bank that is growing again. The most important change is balance-sheet normalization after the asset cap removal: in Q2 2026, average loans rose 12% y/y and deposits rose 10% y/y. That matters more than the backward-looking 3.1% revenue decline in FY2025, because banks are valued on earnings power through the cycle, not on one year's revenue trend. When a bank with a national deposit franchise starts growing again while still trading at 12.8x earnings, the burden of proof shifts to the bear case.
The second leg of the thesis is operating leverage and expense discipline. FY2025 operating margin jumped to 34.6% from 18.6% in the prior year, and management has cut headcount for 24 consecutive quarters, down to 197k, including 3.5k fewer employees q/q in Q2. That does not mean costs disappear, but it does mean Wells is not chasing growth by adding fixed cost aggressively. Management also held FY2026 expense guidance at ~$55.7B while maintaining $50B plus or minus of NII guidance. In a period where NIM is still slipping, that discipline is what protects EPS.
The third leg is that the feared credit problem is not showing up. Credit card growth is hitting near-term profitability, but charge-offs remain low, with the net charge-off ratio at just 34 bps, down 10 bps y/y. That gives Wells room to keep investing in card acquisition, adviser tools, and payments infrastructure without sacrificing the balance sheet. The launch of Advisor Gateway with GenAI and work on blockchain-based cross-border rails are not reasons alone to own the stock, but they show Wells is using technology to deepen incumbent advantages rather than defend a melting ice cube.
What keeps conviction high is the gap between what the market is still paying for and what the business is now becoming. At $88.18, the stock is only 9.8% below the 52-week high, so this is not a distressed entry, but it is also not a euphoric one. A break in the thesis would be clear: if Q3 and Q4 fail to show NIM stabilization, or if growth starts consuming capital without moving returns toward the 17% to 18% RoTCE target, the rerating case weakens fast. For now, the evidence points the other way.
Asset-cap-removal benefits scale faster, fee businesses stay hot, RoTCE moves credibly toward 17% to 18%, and the stock rerates toward upper peer valuation.
Loan and deposit growth continue, Q4 NIM stabilizes as guided, and investors pay closer to fair value for improving earnings power.
NIM compression persists beyond Q3, NII slips below the $50B +/- guide, and the market keeps WFC near a discounted bank multiple despite decent credit.
Quant call aligns with analyst consensus (Buy: 3 buy / 4 hold / 0 sell).
The single greatest edge an investor can have is a long-term orientation.
Forward earnings power is better than the trailing numbers imply. The stock trades at 12.8x FY2025 EPS of $6.39, but the business is now coming off a Q2 run rate of $2.00 per share with loan growth, deposit growth, and fee income all improving after the asset cap removal, so the relevant multiple is on rising earnings, not on a cleanup-year base. The moat looks stronger than it did 3 years ago because the cap removal restores Wells Fargo's ability to use its national deposit base, payments franchise, adviser network, and commercial relationships at full scale, while AI should help rather than hurt through lower servicing costs and better adviser productivity, already visible in Advisor Gateway with GenAI. The main secular constraint remains regulation and funding mix pressure, but over 3 to 5 years Wells Fargo looks more like a normalized large-bank compounder than a permanently impaired franchise.
- Valuation remains undemanding at 12.8x P/E versus 16.0x for peers, with the quant engine's $105.5 target implying 19.6% upside from $88.18.
- Core growth turned materially better after the asset cap lift, with average loans +12% y/y and deposits +10% y/y in Q2 2026.
- Management maintained FY2026 guidance for NII at $50B +/- and noninterest expense at ~$55.7B, while Q2 delivered EPS $2.00, revenue +9% y/y, and a 34 bps net charge-off ratio, down 10 bps y/y.
- FY2025 earnings quality improved sharply, with EPS of $6.39, up 11.6% y/y, and operating margin of 34.6% versus 18.6% the prior year.
- Q2 2026 showed broad-based momentum, with $33.59B of revenue, $8.05B of EBITDA, and every operating segment posting higher NII and noninterest income.
- Credit remains unusually benign for a bank expanding cards and loans, with the net charge-off ratio at 34 bps, improving 10 bps y/y, while sector card delinquency is only 2.85% and easing.
- Capital return is rebuilding, with the common dividend raised 11% to $0.50 per share for Q3, and management still targets 17% to 18% RoTCE over time.
- Net interest margin is still under pressure, down 4 bps q/q in Q2, and management explicitly expects another quarter of modest compression in Q3 before stabilization in Q4.
- FY2025 revenue fell 3.1% y/y to $123.5B, so the rerating case depends on forward earnings power rather than trailing revenue growth.
- Funding mix improvement is less robust than hoped, as noninterest-bearing deposits are now expected to be relatively stable rather than growing.
- Credit card growth is diluting near-term profitability because acquisition and seasoning costs are front-loaded, which matters when the stock is already trading only 9.8% below its 52-week high.
| Metric | Value | Context |
|---|---|---|
| Current price | $88.18 | Reference price for valuation and scenario framework |
| Quant price target | $105.5 | 19.6% upside vs current, high confidence |
| FY2025 revenue | $123.5B | -3.1% YoY, trailing base still reflects transition year |
| FY2025 EPS | $6.39 | +11.6% YoY, earnings improved despite lower revenue |
| FY2025 operating margin | 34.6% | Up from 18.6% in prior FY |
| FY2025 net margin | 24.6% | Strong profitability for a diversified bank |
| Valuation | 12.8x P/E | 2.12x P/S | 1.52x P/B | P/E below 16.0x peer average, P/S above 1.9x peers |
| Q2 2026 revenue and EBITDA | $33.59B revenue | $8.05B EBITDA | Revenue +9% YoY, EBITDA margin 24.0% |
| FY2026 guidance | $50B +/- NII | ~$55.7B noninterest expense | Maintained despite expected Q3 NIM pressure |
| Balance sheet and cash flow | $459.1B debt | 2.55 debt/equity | $6.8B FCF | Financial profile typical for large banks, cash flow positive |
| Shareholder returns | $0.50/share dividend | Q3 common dividend up 11% |
| 52-week position | $72.78-$97.76 | Current price is -9.8% vs high and 3.5% above 200-day average |
The biggest risk is that NIM compression lasts longer than management expects, because another few quarters of pressure after the 4 bps q/q Q2 decline would put the $50B +/- FY2026 NII guide at risk and cap EPS upside.
The next catalyst is Q3 earnings on October 13, 2026, where the market needs confirmation that NIM compression is tracking management's plan and that loan growth is holding strong enough to protect the $50B +/- FY2026 NII outlook.
Ownership is crowded among institutions, with the top three holding 70.8%, while insiders own only 0.2%. That usually reduces squeeze dynamics, and the short base is small at 1.12% of shares, or 33.9M shares, with 2.2 days to cover, so this is not a technical short-covering story. Options positioning is mildly supportive: the positive GEX regime and zero-gamma at $87.69, just 0.76% below spot, suggest dealer positioning is more likely to damp volatility than amplify it unless fundamentals break the current range.
Primary beneficiary of post-cap balance-sheet growth, with deposits +10% y/y and headcount down for 24 consecutive quarters supporting efficiency.
Average loans +12% y/y in Q2 2026, but card expansion is pressuring near-term profitability through upfront acquisition and seasoning costs.
Investment banking fees exceeded $900M for a record quarter, and the markets balance sheet is up $198B since end-2024, though growth should moderate in 2H.
GenAI-enabled Advisor Gateway should improve adviser productivity and client service, supporting fee durability rather than pure spread dependence.
Exposure is mainly to the U.S. consumer, corporate, and rates cycle, with blockchain-based cross-border payments investment offering targeted international utility rather than a global bank model.
Wells Fargo posted broad-based Q2 strength and maintained FY26 NII/expense guidance despite NIM pressure.
Execution has been better than the market still gives credit for. On the 2024 Q3 call, management said Q4 2024 NII would be roughly in line with Q3 and that Wells was close to the trough, while full-year 2024 noninterest expense would be about $54B. Since then, the business has clearly moved past the trough phase: FY2025 EPS rose to $6.39, up 11.6% y/y, operating margin expanded to 34.6% from 18.6%, and Q2 2026 revenue grew 9% y/y with every segment posting higher NII and noninterest income. The strategic direction has not changed materially, but the operating setup has improved faster after the asset cap removal than it appeared likely two years ago. The earnings record supports credibility, with 6 beats in the last 8 quarters, including +18.8%, +11.6%, +9.2%, and +13.3% EPS beats, offset by only two small misses of 1.3% and 2.4%. Management did not fully deliver smooth NIM recovery, but it did deliver better growth, lower headcount, and stronger profitability.
We are maintaining our guidance of $50 billion plus or minus of net interest income for the full year And similar to last year, we expect stronger growth in the second half of the year compared to the first half.
we expect modest net interest margin compression in the third quarter broadly in line with second quarter's decline from the first quarter before stabilizing the fourth quarter.
We grew diluted earnings per share to $2 in the second quarter up 25% from a year ago. Revenue grew 9% from a year ago,
assuming favorable conditions continue to exist, we remain confident that our favorable trends will allow us to achieve this goal in a reasonable time frame and then reset the bar higher for the future.
What we are seeing in NIM is not happening to us. What we are seeing in NIM is because things that we are doing, and those are things that we do not have to continue to do or we can unwind at some point as well.
Wells Fargo's moat is its scaled U.S. deposit franchise, entrenched customer relationships across consumer and commercial banking, and the ability to spread compliance, technology, and product investment across a very large asset base. That moat was blunted by the asset cap, but the recent 12% loan growth and 10% deposit growth show it is functioning again. Durability is solid, not perfect: regulation raises the cost of doing business, but it also protects incumbents with scale, data, and low-cost funding.
Capital allocation is turning more shareholder-friendly again, but still disciplined. Deep-dive data show FCF of $6.8B, dividends of $1.6B, and buybacks of $0.0B, so management is not stretching to repurchase stock while balance-sheet growth and regulatory execution are still in focus. The 11% dividend increase to $0.50 per share suggests confidence in recurring earnings, while the absence of buybacks leaves room for future capital return if RoTCE progresses toward the 17% to 18% goal.
WFC rates a BUY at High conviction. The stock is still valued below peers even though the business is now growing again, profitability has improved sharply, and the asset cap removal is finally showing up in loans, deposits, and fee businesses. The near-term argument turns on one issue, NIM stabilization, but management has enough growth and cost control to bridge through that pressure. A move toward $105.5 is justified if Q3 and Q4 confirm the current path. A downgrade would require evidence that NII is slipping below the $50B +/- guide or that credit costs rise materially from the current 34 bps charge-off ratio.
≣ Full research note tap to expand
Executive Summary
BUY, High conviction. Rated BUY, High conviction. Wells Fargo is translating the asset cap removal into real balance-sheet growth, with average loans up 12% and deposits up 10% y/y in Q2 2026, while still holding FY2026 guidance at $50B plus or minus of net interest income and ~$55.7B of expenses despite near-term NIM pressure. At 12.8x earnings versus a 16.0x peer average, the stock still discounts too much skepticism for a bank that just delivered EPS of $2.00, up 25% y/y, and sits only 9.8% below its 52-week high, not stretched but already confirming improving fundamentals.
Investment Thesis
Wells Fargo is no longer just a rehabilitation story. The market still prices it partly that way, but the actual operating data now show a bank that is growing again. The most important change is balance-sheet normalization after the asset cap removal: in Q2 2026, average loans rose 12% y/y and deposits rose 10% y/y. That matters more than the backward-looking 3.1% revenue decline in FY2025, because banks are valued on earnings power through the cycle, not on one year's revenue trend. When a bank with a national deposit franchise starts growing again while still trading at 12.8x earnings, the burden of proof shifts to the bear case.
The second leg of the thesis is operating leverage and expense discipline. FY2025 operating margin jumped to 34.6% from 18.6% in the prior year, and management has cut headcount for 24 consecutive quarters, down to 197k, including 3.5k fewer employees q/q in Q2. That does not mean costs disappear, but it does mean Wells is not chasing growth by adding fixed cost aggressively. Management also held FY2026 expense guidance at ~$55.7B while maintaining $50B plus or minus of NII guidance. In a period where NIM is still slipping, that discipline is what protects EPS.
The third leg is that the feared credit problem is not showing up. Credit card growth is hitting near-term profitability, but charge-offs remain low, with the net charge-off ratio at just 34 bps, down 10 bps y/y. That gives Wells room to keep investing in card acquisition, adviser tools, and payments infrastructure without sacrificing the balance sheet. The launch of Advisor Gateway with GenAI and work on blockchain-based cross-border rails are not reasons alone to own the stock, but they show Wells is using technology to deepen incumbent advantages rather than defend a melting ice cube.
What keeps conviction high is the gap between what the market is still paying for and what the business is now becoming. At $88.18, the stock is only 9.8% below the 52-week high, so this is not a distressed entry, but it is also not a euphoric one. A break in the thesis would be clear: if Q3 and Q4 fail to show NIM stabilization, or if growth starts consuming capital without moving returns toward the 17% to 18% RoTCE target, the rerating case weakens fast. For now, the evidence points the other way.
Key Metrics
| Metric | Value | Context | ||
|---|---|---|---|---|
| Current price | $88.18 | Reference price for valuation and scenario framework | ||
| Quant price target | $105.5 | 19.6% upside vs current, high confidence | ||
| FY2025 revenue | $123.5B | -3.1% YoY, trailing base still reflects transition year | ||
| FY2025 EPS | $6.39 | +11.6% YoY, earnings improved despite lower revenue | ||
| FY2025 operating margin | 34.6% | Up from 18.6% in prior FY | ||
| FY2025 net margin | 24.6% | Strong profitability for a diversified bank | ||
| Valuation | 12.8x P/E | 2.12x P/S | 1.52x P/B | P/E below 16.0x peer average, P/S above 1.9x peers |
| Q2 2026 revenue and EBITDA | $33.59B revenue | $8.05B EBITDA | Revenue +9% YoY, EBITDA margin 24.0% | |
| FY2026 guidance | $50B +/- NII | ~$55.7B noninterest expense | Maintained despite expected Q3 NIM pressure | |
| Balance sheet and cash flow | $459.1B debt | 2.55 debt/equity | $6.8B FCF | Financial profile typical for large banks, cash flow positive |
| Shareholder returns | $0.50/share dividend | Q3 common dividend up 11% | ||
| 52-week position | $72.78-$97.76 | Current price is -9.8% vs high and 3.5% above 200-day average |
Financial Strength
The balance sheet needs to be read like a bank, not an industrial company, so the low 0.51 current ratio and high reported leverage are less informative than credit performance, earning power, and capital discipline. On those measures, the picture is solid: FY2025 net margin was 24.6%, operating margin recovered to 34.6%, free cash flow was $6.8B, and Q2 credit costs remained well-behaved with a 34 bps net charge-off ratio. The main financial debate is not solvency but spread durability, because funding mix pressure and NIM compression can slow earnings conversion even if credit stays benign.
Competitive Position
Wells Fargo's moat is its scaled U.S. deposit franchise, entrenched customer relationships across consumer and commercial banking, and the ability to spread compliance, technology, and product investment across a very large asset base. That moat was blunted by the asset cap, but the recent 12% loan growth and 10% deposit growth show it is functioning again. Durability is solid, not perfect: regulation raises the cost of doing business, but it also protects incumbents with scale, data, and low-cost funding.
Management & Guidance
Management's FY2026 guide is clear and reasonably credible. CFO Michael Santomassimo said, "We are maintaining our guidance of $50 billion plus or minus of net interest income for the full year And similar to last year, we expect stronger growth in the second half of the year compared to the first half." He also said, "we expect modest net interest margin compression in the third quarter broadly in line with second quarter's decline from the first quarter before stabilizing the fourth quarter." That guidance is believable because Q2 fundamentals were broad-based, but credibility is not perfect since Wells has had two modest EPS misses in the last three quarters and noninterest-bearing deposit trends are now weaker than previously assumed.
Segment Analysis
- Consumer and broad banking franchise (Largest revenue base, exact FY2025 mix not provided): Primary beneficiary of post-cap balance-sheet growth, with deposits +10% y/y and headcount down for 24 consecutive quarters supporting efficiency.
- Lending and cards (Meaningful earnings driver, exact FY2025 mix not provided): Average loans +12% y/y in Q2 2026, but card expansion is pressuring near-term profitability through upfront acquisition and seasoning costs.
- Markets and investment banking (Important noninterest income contributor, exact FY2025 mix not provided): Investment banking fees exceeded $900M for a record quarter, and the markets balance sheet is up $198B since end-2024, though growth should moderate in 2H.
- Wealth and advisory (Fee income contributor, exact FY2025 mix not provided): GenAI-enabled Advisor Gateway should improve adviser productivity and client service, supporting fee durability rather than pure spread dependence.
- Geography (Predominantly United States): Exposure is mainly to the U.S. consumer, corporate, and rates cycle, with blockchain-based cross-border payments investment offering targeted international utility rather than a global bank model.
Capital Allocation
Capital allocation is turning more shareholder-friendly again, but still disciplined. Deep-dive data show FCF of $6.8B, dividends of $1.6B, and buybacks of $0.0B, so management is not stretching to repurchase stock while balance-sheet growth and regulatory execution are still in focus. The 11% dividend increase to $0.50 per share suggests confidence in recurring earnings, while the absence of buybacks leaves room for future capital return if RoTCE progresses toward the 17% to 18% goal.
Management Execution & Track Record
Execution has been better than the market still gives credit for. On the 2024 Q3 call, management said Q4 2024 NII would be roughly in line with Q3 and that Wells was close to the trough, while full-year 2024 noninterest expense would be about $54B. Since then, the business has clearly moved past the trough phase: FY2025 EPS rose to $6.39, up 11.6% y/y, operating margin expanded to 34.6% from 18.6%, and Q2 2026 revenue grew 9% y/y with every segment posting higher NII and noninterest income. The strategic direction has not changed materially, but the operating setup has improved faster after the asset cap removal than it appeared likely two years ago. The earnings record supports credibility, with 6 beats in the last 8 quarters, including +18.8%, +11.6%, +9.2%, and +13.3% EPS beats, offset by only two small misses of 1.3% and 2.4%. Management did not fully deliver smooth NIM recovery, but it did deliver better growth, lower headcount, and stronger profitability.
Positioning & Flows
Ownership is crowded among institutions, with the top three holding 70.8%, while insiders own only 0.2%. That usually reduces squeeze dynamics, and the short base is small at 1.12% of shares, or 33.9M shares, with 2.2 days to cover, so this is not a technical short-covering story. Options positioning is mildly supportive: the positive GEX regime and zero-gamma at $87.69, just 0.76% below spot, suggest dealer positioning is more likely to damp volatility than amplify it unless fundamentals break the current range.
Bull Case
- FY2025 earnings quality improved sharply, with EPS of $6.39, up 11.6% y/y, and operating margin of 34.6% versus 18.6% the prior year.
- Q2 2026 showed broad-based momentum, with $33.59B of revenue, $8.05B of EBITDA, and every operating segment posting higher NII and noninterest income.
- Credit remains unusually benign for a bank expanding cards and loans, with the net charge-off ratio at 34 bps, improving 10 bps y/y, while sector card delinquency is only 2.85% and easing.
- Capital return is rebuilding, with the common dividend raised 11% to $0.50 per share for Q3, and management still targets 17% to 18% RoTCE over time.
Bear Case
- Net interest margin is still under pressure, down 4 bps q/q in Q2, and management explicitly expects another quarter of modest compression in Q3 before stabilization in Q4.
- FY2025 revenue fell 3.1% y/y to $123.5B, so the rerating case depends on forward earnings power rather than trailing revenue growth.
- Funding mix improvement is less robust than hoped, as noninterest-bearing deposits are now expected to be relatively stable rather than growing.
- Credit card growth is diluting near-term profitability because acquisition and seasoning costs are front-loaded, which matters when the stock is already trading only 9.8% below its 52-week high.
Valuation & Price Target
Engine price target $105.5 (+19.6% vs current), High confidence.
- P/E Multiple: $113.06 (28% weight)
- P/S Multiple: $91.54 (20% weight)
- Quality-adjusted: $107.42 (20% weight)
- DCF: $108.59 (10% weight)
This rating aligns with the quant baseline BUY (High conviction) and does so for fundamental reasons, not because of the low-signal sell-side consensus. The key facts are straightforward: 12.8x P/E is below the 16.0x peer average, FY2025 EPS grew 11.6% despite revenue declining 3.1%, and the more relevant current setup is Q2 2026 with revenue +9% y/y, EPS $2.00, loans +12%, and deposits +10% after the asset cap removal. The quant target of $105.5 is reasonable because the market is still discounting a franchise that now has improving growth, benign credit at a 34 bps charge-off ratio, and a credible path to higher returns if NIM stabilizes in Q4 as guided.
Risk Assessment
Risk score 36/100 (Low). The biggest risk is that NIM compression lasts longer than management expects, because another few quarters of pressure after the 4 bps q/q Q2 decline would put the $50B +/- FY2026 NII guide at risk and cap EPS upside.
The Bottom Line
WFC rates a BUY at High conviction. The stock is still valued below peers even though the business is now growing again, profitability has improved sharply, and the asset cap removal is finally showing up in loans, deposits, and fee businesses. The near-term argument turns on one issue, NIM stabilization, but management has enough growth and cost control to bridge through that pressure. A move toward $105.5 is justified if Q3 and Q4 confirm the current path. A downgrade would require evidence that NII is slipping below the $50B +/- guide or that credit costs rise materially from the current 34 bps charge-off ratio.
Go deeper in the app
Live charts, options analytics, the full earnings-call breakdown, price alerts, and every other stock — updated in real time.
Get Tickr