Morgan Stanley is sticking its neck out for Wells Fargo with a bold upgrade just over a week before the bank reports earnings next Tuesday. The firm upgraded Wells to a buy-equivalent rating from hold Monday and named it a top pick — betting that one of this year’s biggest bank laggards is poised to play catch-up thanks to a “clearer path to improving profitability in 2027.” Analysts’ price target of $102 implies about 27% upside from Friday’s close and is about $6 above the Club stock’s record close in early January. Shares rose about 1.5% Monday but remain down about 12% this year. By comparison, BNY has surged 24%, Citi has gained nearly 11% and Goldman Sachs is up roughly 2%, while the Invesco KBW Bank ETF is up about 4%. BNY and Goldman are both Club names. What makes the call particularly striking is the timing. Rather than waiting for Wells to open its books next week, Morgan Stanley is betting that some of the biggest pressures behind that underperformance are already starting to ease. The willingness to make that call ahead of fresh results caught Jim Cramer’s attention. “Typically we would not get anything of any substance ahead of the numbers,” Jim said on CNBC, just before the opening bell Monday. “It was a very big call,” he added later on Monday’s Morning Meeting . The analysts see 2026 as a transition year for Wells Fargo following the removal of the Federal Reserve’s punitive $1.95 trillion asset cap last June, which restricted the bank’s balance-sheet growth for more than seven years. Freed from that constraint, Wells has rapidly expanded and ended June with $2.23 trillion in assets, up 15% year over year. But to achieve that growth, Wells initially relied on more expensive borrowing to fund lower-yielding assets. That squeezed net interest margin (NIM) — a profitability metric measuring the difference between what a bank earns on interest-bearing assets, such as loans, and what it pays to fund them. While customer deposits are the cheapest source of funding, banks also use more expensive wholesale funding channels, especially when they need money quickly. This is where Wells had found itself. Now, with the initial burst of balance sheet growth now slowing, Morgan Stanley said Wells should need less expensive borrowing and can fund more of its business with lower-cost customer deposits. Higher interest rates could provide another tailwind . Morgan Stanley expects NIM to stabilize around 2.42% through the first quarter of 2027 before expanding to 2.49% by the fourth quarter. “Normalizing balance sheet growth should ease funding pressure, stabilize NIM, and raises our conviction in the path to higher returns,” the analysts wrote. In the more immediate term, CFO Mike Santomassimo said at a Sept. 15 conference that Wells’ NIM for the third quarter ended in September was running ahead of expectations. The opportunity isn’t just about better margins. Morgan Stanley said Wells can “earn more fees from relationships where it is…
Read More: Wells Fargo gets a bold upgrade ahead of earnings. Why the stock can play