Potential Fed Rate Hikes Turn This Wells Fargo Analyst Bullish

Wells Fargo & Co WFC could be one of the “clear winners” of the Federal Reserve's earlier-than-anticipated interest rate hikes, according to Morgan Stanley.

The Wells Fargo Analyst: Betsy Graseck upgraded the rating for Wells Fargo from Equal-Weight to Overweight while raising the price target from $46 to $61.

The Wells Fargo Thesis: While markets are concern about a decline in liquidity arising from the Federal Reserve’s tapering, banks are “swimming in liquidity, with loan to deposit ratios of ~50%” and can extend loans when “nonbank financials have to pull back,” Graseck said in the upgrade note.

“WFC is in a strong position to monetize higher rates, as cash stands at 15% of earning assets, 7% points above pre-pandemic levels,” the analyst wrote.

“WFC benefit to EPS from rising rates is the highest in the group, with each ~50bps increase in FF driving ~16% increase in EPS; 50bps in long end rates drives ~7% to EPS,” she added.

WFC Price Action: Shares of Wells Fargo were up 3.56% at $49.44 midday Monday.