Jim Cramer Weighs In On Wells Fargo Stock Following Analyst Upgrade

Wells Fargo & Co WFC is trading higher Monday following an upgrade and price target increase from Morgan Stanley.

What Happened: Morgan Stanley analyst Betsy Graseck upgraded Wells Fargo from Equal-Weight to Overweight and announced a $61 price target. The main reason for the upgrade is the expectation that the Federal Reserve will raise interest rates next year.

The Morgan Stanley analyst believes an accelerated taper means rate hikes will come sooner. Graseck noted banks are the only outperforming sector in a rising-rates environment.

Related Link: Potential Fed Rate Hikes Turn This Wells Fargo Analyst Bullish

Cramer's Take: "We like the Morgan Stanley call this morning, and it is not so different from what we have said about our favorite banks," Jim Cramer said Monday in a letter to members of CNBC's "Investing Club."

Wells Fargo has a ton of positive leverage to higher interest rates, he said. Every 50-basis point increase in fed funds increases Wells Fargo’s net interest income by 7% and earnings per share by 16%, Cramer said, citing Wells Fargo. 

With unknowns surrounding the new coronavirus strain, the Fed's next moves remain largely unknown. However, Morgan Stanley thinks the omicron variant will delay the economic recovery by a quarter at worst.

Cramer told members of the "Investing Club" he has not added to his Wells Fargo position for portfolio management purposes.

"Wells Fargo is already one of the largest positions in the portfolio," Cramer said. "We think Wells Fargo is more of a restructuring story because of its cost-cutting initiatives and timing of the asset cap removal, but it’s also a great way to play higher interest rates, if that is something you believe."

WFC Price Action: Wells Fargo has traded as high as $52.56 and as low as $28.40 over a 52-week period.

The stock was up 3.61% at $49.47 at time of publication.

Photo: Shinya Suzuki from Flickr.