Morgan Stanley Upgrades Wells Fargo to Overweight: NIM Stabilization May Drive Valuation Recovery
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Morgan Stanley upgraded Wells Fargo to overweight with a $102 price target, arguing that net interest margin is near its trough and the stock is meaningfully undervalued.
Why is Morgan Stanley turning bullish now?
Analyst Manan Gosalia upgraded Wells Fargo from equal-weight to overweight, set a $102 target, and named it a top pick.
The stock rose 1.65% to $81.77 on Monday — still roughly 25% below the target.
Core thesis: investors have over-penalized Wells Fargo during its transition period, creating an attractive entry point.
What exactly is the "transition" about?
Regulators previously imposed an asset cap — a hard ceiling on Wells Fargo's total assets. Once lifted, the bank rushed to grow, leaning on costlier wholesale funding while adding lower-yielding assets.
This means → net interest margin — the spread between what a bank earns on loans and what it pays on deposits — got squeezed from both sides: borrowing costs rose while asset yields stayed low.
In plain terms = imagine a shop that just removed its crowd-control rope and opened extra counters overnight — staffing costs jumped, but everything on sale was still discounted. Margins shrank.
Is the worst really over?
Gosalia believes the worst is behind: Wells Fargo is now expanding at a steadier pace, shifting its funding mix toward cheaper customer deposits.
He expects NIM to bottom between now and early next year, then recover to 2.49% by end of 2027.
This reflects a pivot from "chase scale" to "improve quality" — and funding pressure is easing as a result.
What signals does the stock still need?
Near term: Wells Fargo must show investors that NIM has stopped compressing. Once that signal lands, a share-price bounce could follow quickly.
Medium to long term: further upside depends on driving overall earnings growth through cost discipline, deeper client relationships, and higher asset returns.
The next test: Q3 earnings on October 13 (pre-market) — NIM trajectory will be the number the market watches most closely.
Is the valuation actually cheap?
Gosalia notes the stock trades at 1.5× 2027 tangible book value per share — a level he calls clearly undervalued.
Year to date, shares are down about 12%, on track for the worst annual performance since 2022; peers JPMorgan and Citigroup have materially outperformed.
FactSet data show 29 covering analysts carry an average overweight rating — Morgan Stanley is not alone in its bullish view.
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