Piper Sandler upgrades Wells Fargo, citing sensitivity to rising rates

Published Wed, Jan 12 20227:33 AM EST

Piper Sandler on Wednesday upgraded shares of Wells Fargo, saying the bank is among the top beneficiaries in the industry of rising rates. Analyst R. Scott Siefers raised his rating on Wells Fargo to overweight from neutral. Siefers also hiked the price target on the stock to $64 from $50. The new projection implies 14.2% upside from Tuesday's close. "We find ourselves searching for names that still have both multiple touchpoints for opportunity and a compelling valuation. And while WFC is certainly not without its risks, it fits the bill better than many others. So we think now is a good time to take a second look," Siefers said in a note. Bank stocks have broken out as rates have moved higher. Subsiding investor concerns about Covid and its risk to economic growth are helping push rates up. The Fed is also dialing back its pandemic-era easy monetary policy and set to hike interest rates this year to tamp down inflation. Rising interest rates can boost banks' profits because they can charge more for loans. "WFC remains very well positioned for higher interest rates, and it has become more asset sensitive over time," Siefers said. The stock is already up 16.8% this year. Wells Fargo rallied 59% in 2021, outperforming the S & P 500's roughly 27% gain. "While the stock has done well recently, it has still been a rough one over time, the valuation remains discounted, and we see plenty of room to make up lost ground," Siefers said. Wells Fargo has faced a number of regulatory challenges over the past several years after controversial business practices came to light. The Federal Reserve in 2018 put an asset cap on Wells Fargo of $1.95 trillion after the bank's fake account scandal in which it created millions of bank accounts in real people's names without their knowledge or consent. The bank is set to report fourth-quarter earnings Friday. However, Siefers said his upgrade is not based on expected quarterly results. "Given the proximity to earnings ... it seems natural to wonder if we're making this call with a direct eye on the print. We are not. We are definitely optimistic ... But we suspect WFC would like to lay out credible guidance rather than put out unrealistic expectations that set the company up for failure," Siefers said. "Our rating is geared toward the longer-term tenets of the story, including what we hope to be an improving NII (net interest income) outlook and multi-year cost story, for instance," the analyst added. —CNBC's Michael Bloom contributed reporting.

Wells Fargo signage on May 5th, 2021 in New York City.

Bill Tompkins | Michael Ochs Archives | Getty Images

Piper Sandler on Wednesday upgraded shares of Wells Fargo, saying the bank is among the top beneficiaries in the industry of rising rates.