Morningstar

Wells Fargo Earnings: Shares Up as Bank Improves ROTE Guidance After Asset Cap Removal

We plan to increase our fair value estimate of Wells Fargo stock.

Facade of Wells Fargo bank branch with visible ATM and signage.
Smith Collection/Gado via Getty
Securities in This Article
Wells Fargo & Co
(WFC)

Key Morningstar Metrics for Wells Fargo

What We Thought of Wells Fargo’s Earnings

Wells Fargo WFC reported a good set of numbers, resulting in third-quarter earnings of $1.66 per share, equating to an annualized return on total equity of 15.2%. While earnings were strong, the main highlight was the discussion around the updated medium-term return target.

Why it matters: Management announced a revised medium-term ROTE target of 17%-18% from the current target of 15% as the bank’s growth is no longer restrained. The target revision was higher than our and the market’s expectations, leading to a 7% rally in the stock price.

  • Management also shared targets on optimizing the bank’s capital base to a 10.0%-10.5% common equity Tier 1 ratio, down from at or above 11% in each of the last nine quarters. It is interesting to see banks explicitly reducing their targeted capital levels as regulators have signaled relaxation.
  • Management hopes to achieve higher returns through incremental efficiencies across all its businesses, especially through completing the transformation of its home lending business. Management believes there is scope for improved profitability across all its operating segments.

The bottom line: We plan on increasing our $72 fair value estimate for wide-moat Wells Fargo by an estimated high-single-digit percentage after incorporating third-quarter results as we revise our long-term growth projections, operating efficiency, and return profile for the firm.

  • Asset cap removal was an extremely important development for the bank, and early indications point to higher benefits of cap removal than we had initially thought.
  • For instance, new checking accounts and credit card accounts increased by 8% and 9%, respectively, in 2025 compared with the previous year. Trading-related assets increased by 50% in the past two years, and investment banking share also grew 30 basis points to 4.4%.

Big picture: It seems we are potentially in the early phases of Wells Fargo’s revival to its prior glory.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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