Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Wells Fargo Are Up This Week

By Bram Berkowitz – Jan 6, 2022 at 7:54AM

Key Points

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The bank has performed extremely well in a tough market this week.

What happened

Shares of Wells Fargo (WFC -1.59%) traded more than 11% higher for the week as of 12:37 p.m. ET on Thursday, as the company benefited from bullish sentiment on Wall Street and rising long-term rates.

So what

On Monday, Barclays analyst Jason Goldberg upgraded Wells Fargo stock from equal weight to outperform. He also increased the price target to $62, which implies a 17% upside even after a strong lift this week.

Wells Fargo is expected to enjoy "substantial progress on its regulatory issues, expense saving opportunities, and above-average excess capital," Goldberg wrote in his research note.

Wells Fargo logo on building.

Image source: Getty Images.

The bank has been under an asset cap since the start of 2018 for its phony-accounts scandal in which employees at the bank opened millions of credit card and depository accounts without the authorization of customers. Additionally, Wells Fargo has 10 outstanding consent orders, so investors are likely happy to see Goldberg bullish on its regulatory prospects.

Furthermore, the Federal Reserve's new plan to potentially raise interest rates quicker and then maybe start to shrink its balance sheet has sent long-term interest rates up significantly. The yield on the U.S. 10-year Treasury note is currently near 1.74%, which was also about the highest level briefly seen in 2021.

Now what

Wells Fargo is very sensitive to rising interest rates. A 1% parallel move higher in short- and long-term interest rates would increase the bank's net interest income, profits from loans and securities after covering the cost of funding those assets, by $7.4 billion.

I expect the bank to benefit from rising rates this year, and perform even better if there is positive news on the regulatory front.

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.