KKR: Wells Fargo Maintains Overweight Rating, Raises PT to $156 from $140

KKR: Wells Fargo Maintains Overweight Rating, Raises PT to $156 from $140

Wells Fargo & Company (WFC) has maintained an overweight rating from KKR, with the price target raised to $156 from $140. This update comes as the bank is set to report its second-quarter 2025 results on July 15, 2025, before the market opens. The updated rating reflects the anticipation of the bank's earnings report and the broader financial market conditions.

WFC's first-quarter performance was bolstered by a slight improvement in non-interest income, coupled with declines in provisions and non-interest expenses. However, the decrease in net interest income (NII) was a notable challenge. The Zacks Consensus Estimate for the second-quarter 2025 revenues is $20.7 billion, indicating a marginal year-over-year rise. The consensus estimate for earnings for the upcoming quarter has been revised downward to $1.40, suggesting a 5.3% rise from the prior-year quarter's actual [1].

Key developments for Wells Fargo in the second quarter include the Federal Reserve removing the $1.95-trillion asset cap on the company, a significant milestone after years of restrictions following the fake account scandal. The Fed has determined that WFC has met all conditions required by the 2018 enforcement action for the removal of the growth restriction [1].

The Federal Reserve kept interest rates unchanged at 4.25-4.5% in the second quarter, which is expected to have a modest impact on WFC's NII. The lending scenario was solid, with demand for commercial and industrial, real estate, and consumer loans being strong in the first two months of the quarter. This suggests an improvement in the company's lending activity in the reported quarter [1].

Mortgage rates fluctuated but remained in the mid-to-upper 6% range, leading to decent refinancing activities and origination volume. This is likely to have supported Wells Fargo's mortgage banking revenues, with the Zacks Consensus Estimate for the second quarter of 2025 pegged at $271.2 million, indicating a 11.6% rise from the year-ago quarter's reported level [1].

Global mergers and acquisitions (M&As) in the second quarter of 2025 were robust, with deal-making activities resuming after an initial market plunge due to Trump's tariffs. This is expected to have supported WFC's investment banking (IB) revenues, with the Zacks Consensus Estimate for IB income at $721.3 million, indicating a 12.5% year-over-year rise [1].

Wells Fargo's expenses are expected to have witnessed a modest decline in the second quarter of 2025, thanks to prudent expense management initiatives. The company has been streamlining its organizational structure, closing branches, and reducing headcount to lower operating expenses and enhance profitability over the long term [1].

The bank's asset quality is expected to have remained stable, with the consensus mark for total non-accrual loans pegged at $8.1 billion, indicating a year-over-year decline of 4.1%. The consensus estimate for non-performing assets is $8.3 billion, suggesting a 3.9% fall from the year-ago quarter [1].

KKR's updated rating reflects the anticipation of Wells Fargo's earnings report and the broader financial market conditions. The bank's performance in the near term will be influenced by its ability to navigate the challenges posed by the Fed rate cuts trajectory and the volatile macroenvironment. Investors should consider the company's long-term prospects and the potential for earnings growth after the quarterly results are out [1].

References:
[1] https://finance.yahoo.com/news/wells-fargo-report-q2-earnings-135000376.html