Wells Fargo hit with downgrade, U.S. Bancorp rating bumped on profit rebound hopes

Raymond James downgraded Wells Fargo to Market Perform, citing that the stock's recent 15%+ rally has priced in much of its near-term upside, with its 12.4x 2026 earnings multiple now at a premium to peers. Concurrently, the firm upgraded U.S. Bancorp to Strong Buy, projecting a significant turnaround with over 200 basis points of positive operating leverage in 2025 and realistic medium-term financial targets, while noting its current discount to peers and raising its price target to $57. This indicates a potential shift in investor focus towards undervalued regional banks as megacap lenders trade at elevated levels.

Analysis

Raymond James has adjusted its ratings on two major US banks, downgrading Wells Fargo (WFC) to Market Perform while upgrading U.S. Bancorp (USB) to Strong Buy. The downgrade of Wells Fargo is driven by valuation concerns following a more than 15% stock price increase since March. The firm notes that WFC now trades at a premium multiple of 12.4 times 2026 earnings, above the peer group average of 11, suggesting that positive catalysts like the lifting of the Fed's asset cap are now fully priced in. While Raymond James remains constructive on WFC's long-term fundamentals, it sees limited near-term upside. Conversely, the upgrade of U.S. Bancorp is predicated on a significant operational turnaround, with a projection of over 200 basis points of positive operating leverage in 2025. This, combined with realistic medium-term targets and a valuation that is at a discount to its peers, underpins the firm's raised price target of $57. This pair of rating changes signals a potential strategic rotation within the banking sector, away from megacap banks trading near 52-week highs and towards regional banks perceived as having greater upside potential.

Key Decisions for Investors

• Investors holding Wells Fargo should consider the stock's recent 15% rally and premium valuation as a potential opportunity to trim positions, as near-term upside appears limited.
• U.S. Bancorp now presents a compelling long opportunity based on its 'Strong Buy' upgrade, discounted valuation, and clear catalysts for improved operating leverage and profitability.
• Consider re-evaluating exposure across the banking sector, potentially rotating capital from large-cap banks trading at or near 52-week highs to select regional banks that offer a more attractive risk-reward profile.