How to Approach Wells Fargo Stocks as It Gains 14.2% in 6 Months?

Shares of Wells Fargo & Company WFC have gained 14.2% in the past six months compared with the industry’s rise of 11.3%. Its peers, Citigroup C and Bank of America BAC have risen 24% and 14%, respectively, over the same time frame.

Price Performance

Given WFC’s impressive rally, investors might wonder if the opportunity to add this stock to their portfolio has passed. However, we believe that Wells Fargo has much going in its favor, and this rally is far from over.

Let us find out what is driving WFC’s performance and whether this is the right time to buy the stock.

Asset Cap Removal to Support WFC’s Growth

Wells Fargo reached a milestone in June 2025 when the Federal Reserve lifted the asset cap imposed in 2018 following the bank’s fake account scandal. The removal eliminates a long-standing constraint on balance-sheet expansion, allowing the company to grow deposits, increase loan balances and expand securities holdings, thereby unlocking its full operating potential. At the UBS Financial Services Conference held on Feb. 10, WFC’s chief financial officer, Mike Santomassimo, stated that the company expects loan growth to pick up in 2026, with credit cards and auto lending leading the way. 

The regulatory relief also provides WFC with greater flexibility to scale fee-based businesses, including payment services, asset management and mortgage origination, supporting revenue diversification and long-term top-line growth. In sync with this, WFC is preparing to enter the options clearing business, reflecting rising demand from clients as options trading activity increases across markets.

With greater strategic flexibility and improved earnings visibility, management raised the company’s medium-term return on tangible common equity (ROTCE) target to 17-18% from the earlier 15%, indicating stronger profitability prospects over the next few years.

Fed Rate Cuts to Support WFC’s NII

Over the past few years, Wells Fargo’s net interest income (NII) has shown steady improvement, posting a four-year compounded annual growth rate (CAGR) of 7.5% ended 2025. 

The Federal Reserve lowered rates three times last year, to 3.5-3.75%, following a 100-basis-point (bp) cut in 2024. With lower rates, funding costs gradually stabilize, supporting increased borrowing, which means more loan volumes. Thus, WFC is expected to witness decent growth in NII in the quarters ahead, supported by lower funding costs, increased loan volumes and repricing of maturing assets into higher yields. 

Wells Fargo expects 2026 NII to reach $50 billion, driven by growth in the balance sheet and changes in loan and deposit mix, as well as continued fixed asset repricing.

2026 NII Outlook

WFC’s Branch Optimization & Expense Management to Aid Growth

WFC’s prudent expense management initiatives have been supporting its financials. The company has been actively engaged in cost-cutting measures, including streamlining organizational structure and headcount reductions. The company also keeps investing in and optimizing its branch network to reduce costs.

By the end of 2025, branches declined 2.1% year over year. Although Wells Fargo has reduced its overall footprint over the past decade, it has invested in branch renovations and new locations as part of a broader growth strategy. The ongoing upgrades aim to foster a more growth-oriented culture.
In 2025, the company refurbished approximately 700 branches, with more than half of its branch network now upgraded and the remaining branches expected to be completed over the next few years.  WFC’s headcount was reduced by 5.9% year over year by the end of 2025. 

The company is also advancing its operational transformation through a phased artificial intelligence (AI) rollout, aimed at improving productivity, streamlining workflows and enhancing customer service. In August 2025, the company expanded its strategic partnership with Google Cloud to deploy generative and agentic AI tools at scale. The bank also plans to introduce AI gradually over the next year and continue expanding its use beyond 2026. Management characterized the transition as a “positive reality,” suggesting that AI-enabled efficiencies will support long-term operational improvements. WFC grew mobile active customers by 1.4 million in 2025, up 4% from a year ago.

Though the company’s expenses for 2026 are projected to increase to $55.7 billion from $54.8 billion in 2025, its continued investments in digital infrastructure and process automation are expected to generate sustained expense savings and enhance overall profitability in the long term.

2026 Expense Outlook

WFC’s Multi-Year Simplification Plan to Enhance Returns

Wells Fargo has been pursuing a strategic exit from various non-core and lower-return businesses to streamline its focus on consumer banking, commercial lending and high-return areas. This effort, led by CEO Charlie Scharf since 2019, aims to cut costs significantly (targeting up to $10 billion annually) and reallocate capital to core franchises.

In sync with this, in January 2026, WFC sold its rail lease portfolio to a joint venture of GATX and Brookfield. In March 2025, the bank completed the sale of its non-agency third-party commercial mortgage servicing business to Trimont, backed by Varde Partners, reducing exposure to operationally complex commercial real estate servicing activities.

In 2023, WFC sold approximately $2 billion of private equity fund investments in Norwest Equity Partners and Norwest Mezzanine Partners to institutional investors, further aligning its portfolio with core banking priorities. The company also pursued strategic simplifications in its Home Lending business by exiting the Correspondent business and reducing the size of its Servicing portfolio, enabling a more focused mortgage operation targeting bank customers.

In 2021, Wells Fargo completed several major divestitures, including the sale of its Asset Management business to GTCR and Reverence Capital Partners, Corporate Trust Services to Computershare, and the Canadian Direct Equipment Finance business to TD Bank, allowing Wells Fargo to concentrate on core consumer and corporate clients. In 2019, Wells Fargo sold its Institutional Retirement & Trust business to Principal Financial Group, and it divested its auto finance segment in Puerto Rico to Popular, Inc. in 2018.

Together, these simplification efforts are expected to reduce operational costs, improve capital efficiency, and enable Wells Fargo to redeploy resources toward higher-return areas, strengthening its long-term growth prospects.

WFC’s Impressive Capital Distribution Plan

Wells Fargo has an impressive capital distribution plan. After clearing the Federal Reserve’s 2025 stress test, the company raised its common stock dividend by 12.5% in July 2025, to 45 cents per share.  It has raised its dividends six times in the past five years with an annualized growth rate of 29.3%. Bank of America raised its dividends five times over the past five years while Citigroup raised its dividends three times in the past five years.

Wells Fargo also has a share repurchase program in place. In April 2025, its board of directors authorized an additional $40 billion share repurchase program, following the $30-billion authorization announced in July 2023. As of Dec. 31, 2025, the company had remaining authority to repurchase up to $29.7 billion of common stock. 

As of Dec. 31, 2025, Wells Fargo’s long-term debt was $174.7 billion. However, short-term borrowings were $251 billion. The company has a strong liquidity position, with a liquidity coverage ratio of 119% as of Dec. 31, 2025, which has exceeded its regulatory minimum of 100%. Its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $174.2 billion as of the same date.

Given its robust capital position and ample liquidity, the company’s capital-deployment activities seem sustainable.

WFC’s Estimates & Valuation Analysis

The Zacks Consensus Estimate for WFC’s 2026 and 2027 earnings indicates 9.9% and 12.8% year-over-year rallies, respectively. Estimates for both years have been revised downward over the past month.

Estimate Revision Trend

In terms of valuation, the WFC stock appears inexpensive relative to the industry. The company is currently trading at a 12-month trailing price-to-earnings (P/E) ratio of 12.71X, which is lower than the industry’s 14.29X. Meanwhile, Citigroup holds a P/E ratio of 11.28X, while Bank of America’s P/E ratio stands at 12.30X.

Price-to-Earnings F12M

Conclusion: Hold WFC Stock for Now

Wells Fargo has made significant progress in reshaping its business, and the removal of the asset cap marks a major turning point. Improved balance-sheet flexibility, disciplined expense management, business simplification and steady capital returns all strengthen its long-term outlook. Additionally, projected earnings growth for 2026 and 2027 and a valuation below the industry average suggest that the stock is reasonably priced.

That said, a significant portion of the positive momentum seems already priced in following the recent rally. Downward revisions to earnings estimates over the past month and the prospect of elevated expenses in the near term could temper short-term performance.

Given this balanced risk-reward profile, existing investors may consider holding on to the WFC stock to benefit from continued operational improvements and capital distributions. Prospective investors, however, may prefer to wait for a more compelling entry point or improved earnings visibility before taking a position.

Wells Fargo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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