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Dipanjan Banchur

Wells Fargo & Company (WFC) Earnings Gameplan

Wells Fargo & Company (WFC) is scheduled to report its fourth-quarter results on January 12. Wall Street expects the bank to post higher revenue, while its EPS is expected to decline year-over-year. Like other major banks, investors will be closely watching how WFC managed the high-interest rate environment during the quarter when reviewing the bank's earnings release.

In this piece, I have discussed why waiting for an opportune entry point in the stock could be wise.

For the fourth quarter, WFC’s EPS is expected to decline 25.6% year-over-year to $1.08. However, its revenue is expected to rise 3.6% year-over-year to $20.37 billion. The company has a solid earnings history, having beaten the consensus estimate in each of the trailing four quarters.

The bank’s net interest income is likely to contract in the fourth quarter. Analyst estimates for WFC’s net interest income in the fourth quarter stood at $12.74 billion, compared to $13.43 billion in the prior-year quarter and $13.11 billion in the previous quarter.

WFC’s consumer banking segment is expected to show higher revenues and improved operating margins. The bank is expected to continue witnessing declines in its home lending portfolio and mortgage banking income during the fourth quarter. In addition, its non-interest expenses are expected to have risen thanks to higher severance expenses and investments in technology and digitalization.

Deutsche Bank downgraded WFC to Hold from “Buy,” keeping the target price unchanged at $51. Deutsche Bank analysts expect weak net interest income guidance for 2024 due to the lower rates following the anticipated interest rate cuts and tepid loan growth.

WFC’s stock has gained 24.2% over the past three months and 30.1% over the past nine months to close the last trading session at $49.29.

Here’s what you might want to consider ahead of its upcoming earnings release:

Robust Financials

WFC’s total revenue for the third quarter ended September 30, 2023, increased 6.6% year-over-year to $20.86 billion. Its net income rose 60.6% year-over-year to $5.77 billion. Its EPS came in at $1.48, representing an increase of 72.1% year-over-year.

Its ROE came in at 13.3%, compared to 8.1% in the prior-year quarter. Also, its net interest income rose 8.3% year-over-year to $13.11 billion. In addition, its CET1 ratio came in at 11% compared to 10.3% in the year-ago quarter.

Mixed Analyst Estimates

WFC’s EPS and revenue for fiscal 2023 are expected to increase 12.9% and 11.8% year-over-year to $5.03 and $82.51 billion, respectively. On the other hand, its EPS and revenue for fiscal 2024 are expected to decline 1.8% and 1.6% year-over-year to $4.94 and $81.16 billion, respectively.

Mixed Valuation

In terms of forward non-GAAP P/E, WFC’s 9.81x is 5.5% lower than the 10.38x industry average. Its 0.69x forward non-GAAP PEG is 53% lower than the 1.47x industry average. Likewise, its 2.17x forward Price/Sales is 18% lower than the 2.65x industry average.

On the other hand, in terms of trailing-12-month GAAP P/E, WFC’s 10.79x is 1.8% higher than the 10.61x industry average.

Weak Profitability

WFC’s 10.80% trailing-12-month Return on Common Equity is 7.6% lower than the 11.69% industry average. Likewise, its 24% trailing-12-month net income margin is 5.2% lower than the 25.31% industry average. Furthermore, the stock’s 0.96% trailing-12-month Return on Total Assets is 17.1% lower than the industry average of 1.16%.

POWR Ratings Reflect Uncertainty

WFC has an overall rating of C, equating to a Neutral rating in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. WFC has a C grade for Value, consistent with its mixed valuation. Its 1.17 beta justifies its C grade for Stability.

It has a C grade for Sentiment, in sync with its mixed analyst estimates.

WFC is ranked first out of nine stocks in the Money Center Banks industry. Click here to access WFC’s Growth, Momentum, and Quality ratings.

Bottom Line

WFC’s fourth-quarter profitability is expected to take a hit due to tepid loan growth, higher provisioning as a result of an anticipated increase in non-performing loans, and the rise in the cost of deposits.

However, the Federal Reserve will likely cut interest rates this year, which could lead to lower capital costs for banks. On the flip side, banks’ net interest income will take a hit. Also, risks related to higher credit card debt and a rise in loan delinquencies could put pressure on banks’ profitability.

WFC’s top executives believe that the asset cap of $1.95 trillion that was imposed by the Fed in 2018 could be lifted by the first quarter of 2025. Lifting of the asset cap could lead to considerable growth for the bank.

Given the uncertainty surrounding the banking sector and mixed analyst estimates, it could be wise to wait for a better entry point in the stock.

How Does Wells Fargo & Company (WFC) Stack Up Against Its Peers?

WFC has an overall POWR Rating of C, equating to a Neutral rating. You may check out these B-rated stocks within the Foreign Banks industry: Erste Group Bank AG (EBKDY), Banco Santander, S.A. (SAN), and KB Financial Group Inc. (KB). To explore more Buy-rated Foreign Banks stocks, click here.

What To Do Next?

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WFC shares were trading at $48.69 per share on Wednesday afternoon, down $0.60 (-1.22%). Year-to-date, WFC has declined -1.08%, versus a 0.05% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.


Wells Fargo & Company (WFC) Earnings Gameplan
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