11:14 AM EDT, 09/29/2025 (MT Newswires) -- Wells Fargo ( WFC ) and US Bancorp ( USB ) have limited upside, especially as both banks face headwinds around margins and revenue, Morgan Stanley said in a note Monday.

The analysts said that they are updating their financial models by shifting their valuation year from 2026 to 2027. This change reflects their expectation that by 2027, merger and acquisition activity and equity capital markets volumes versus nominal gross domestic product will return to the average levels seen between 1996 and 2024.

Wells Fargo ( WFC ) has limited upside following the removal of its asset cap, which had been a major catalyst, the analysts said, adding that while they still assign it a premium valuation multiple compared to other banks they cover, they believe the next significant development will be its fiscal year 2026 guidance in January.

The analysts expect Wells to raise its return on tangible common equity target from the current 15%, but think this is already largely reflected in the market. Their estimates for net interest income, or NII, are now below consensus, given that Wells is not likely to benefit from interest rate cuts due to expected margin compression.

"Wells is still positioned for above-average growth post-cap, supported by strong capital returns ($5.5 billion buybacks in Q3) and excess capital for organic growth or incremental capital return," they added.

The analysts also said that while US Bancorp ( USB ) could benefit from rate cuts through expanding margins, there is still uncertainty around deposit behavior in this cycle. This means deposit costs might remain elevated and continue to put pressure on NII. "Stock still screens cheap relative to the high returns it generates, and management is laser focused on closing the valuation gap by executing on its newly laid out strategy."

Morgan Stanley downgraded US Bancorp ( USB ) to equalweight from overweight and adjusted its price target to $56 from $52. The firm also downgraded Wells Fargo ( WFC ) to equalweight from overweight and raised its price target to $95 from $87.

Price: 84.19, Change: -0.82, Percent Change: -0.96