Morgan Stanley Names Top Pick Amid 3Q26 Earnings

Investing.com -- Morgan Stanley reaffirmed Wells Fargo & Co. as its top pick following the bank's third-quarter 2026 earnings report, despite a modest earnings miss and a slight reduction in the price target to $101 from $102.

The investment bank maintained its Overweight rating, citing the stock's undervaluation at approximately 1.6 times 2027 tangible book value per share as Wells Fargo continues its return on tangible common equity improvement story.

Wells Fargo reported a broadly in-line quarter with net interest income missing consensus estimates by approximately 1%. However, Morgan Stanley analysts highlighted several positive developments that support their bullish thesis on the stock.

Morgan Stanley's analysis focused on the bank's fourth-quarter net interest income guidance of approximately $13 billion on a GAAP basis, which came in 1.4% above Street expectations. The firm projects approximately 7% net interest income growth in 2027, with net interest margin expected to remain flat to slightly down in the first half before expanding to around 2.48% by the fourth quarter of 2027.

Core deposits funded third-quarter asset growth as wholesale funding declined, though noninterest-bearing balances fell 0.9% quarter-over-quarter. Morgan Stanley lowered its 2026 earnings per share estimate by 6 cents to $7.20, and reduced 2027 and 2028 estimates to $8.07 and $9.58, respectively, primarily due to lower buyback assumptions.

The firm reduced its 2026 and 2027 buyback estimates to $12.6 billion and $15.0 billion from $14.6 billion and $17.5 billion previously, though these estimates remain 15% to 20% above Street expectations for 2027 and 2028.

Despite the CET1 ratio holding at 10%, Morgan Stanley sees Wells Fargo as not priced for return on tangible common equity rising to approximately 17% to 18% in 2027 and 2028, supporting the bank's position as the firm's top pick in the sector.

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