Morgan Stanley upgraded Wells Fargo from Equal Weight to Overweight and set a $102 price target. According to Sina Finance, the firm said the pain from Wells Fargo's balance-sheet expansion after its asset cap was lifted is easing, and that the balance between growth and profitability should improve, with net interest margin and return on capital expected to rise again.

Morgan Stanley views 2026 as a transition year for Wells Fargo. After the asset cap was lifted, the company began expanding its balance sheet again, but the initial expansion was concentrated in lower-yielding Markets assets and required more expensive funding, putting clear pressure on net interest margin.

The firm said that pressure is nearing a turning point. As the pace of the initial expansion slows, the dilution from new assets to net interest margin should lessen, while Wells Fargo can rely more on core deposits instead of higher-cost funding and may see more revenue contribution from existing customer relationships.

Morgan Stanley said it has already seen signs of stabilization in net interest margin. Management's recent comments indicated actual net interest margin performance has been better than previously expected. The firm expects Wells Fargo's net interest margin to hold around 2.42% through about the first quarter of 2027, then gradually recover to about 2.49% in the fourth quarter of 2027.

The forecast already includes two further rate hikes. Beyond slower asset growth and a larger contribution from core deposits, more complete net settlement of repurchase agreements could also provide an additional boost to net interest margin.

Morgan Stanley said it places greater emphasis on the lift to overall profitability once net interest margin stabilizes. The firm expects Wells Fargo's return on tangible common equity to rise to about 17% in the second half of 2027 and reach 18% in 2028, compared with about 13% currently. It also said Wells Fargo trades at about 1.5 times its 2027 tangible book value, which it sees as too low if ROTCE reaches 17% to 18% as expected.