Shares of the San Francisco-based bank jumped 3.7% to $33.90.
"WFC is a still-discounted turnaround story that is nearing a positive rate-of-change in many parts of the franchise," analyst Ken Usdin said in a note to investors about the banking sector. "We believe WFC will be one of the few banks to show declining expenses for the next few years, regardless of the size and timing of a formalized cost plan."
Revenue has been a weak spot for Wells Fargo, Usdin said, but comps should get easier for many line items as 2021 progresses.
Net interest income should stabilize at around fourth quarter 2020 levels, the analyst said, helped in part by lower premium amortization and absence of hedge losses, but will still decline 5% to 6% in 2021.
Numerous regulatory compliance orders remain outstanding, with eventual resolution of the asset cap limitation a distinct positive future catalyst, Usdin said.
"WFC's valuation remains lowest in the group on both P/E and P/TBV (price to tangible book value) given the recent and ongoing uncertainties," the analyst wrote. "We believe that WFC could close the gap somewhat as fundamental performance improves."
Usdin said that risks to his upgrade include asset cap removal lingering past 2021, "adding uncertainty about WFC's ability to grow its balance sheet."
Wells Fargo has been hit by numerous scandals and government penalties over the past few years, including the opening of accounts unneeded and unwanted by customers.