Wells Fargo (NYSE: WFC) is scheduled to report its fiscal Q4 2021 results on Friday, January 14, 2022. We expect Wells Fargo to remain slightly behind the consensus estimates of revenues and earnings. While the bank outperformed the street expectations in the Q3 results, its top-line suffered a marginal drop of 2% y-o-y in the quarter. This was because of weak core-banking revenues – consumer and commercial banking divisions, partially offset by growth in wealth & investment management and corporate & investment banking units. The core-banking business was down due to a drop in mortgage banking revenues, coupled with lower net interest income (NII). Notably, the NII is under pressure due to interest rate headwinds and lower outstanding loan balances. We expect the wealth & investment management revenues to maintain the growth trajectory in the fourth quarter, followed by some improvement in the core-banking business driven by loan growth and some recovery in the economy.
Our forecast indicates that Wells Fargo’s valuation is $52 per share, which is 8% below the current market price of close to $56. Our interactive dashboard analysis on Wells Fargo’s Earnings Preview has more details.
(1) Revenues expected to slightly miss the consensus estimates
Wells Fargo’s revenues decreased 15% y-o-y in 2020 to $72.3 billion, mainly driven by a 16% decrease in net interest income (NII), followed by a 14% drop in the non-interest revenues.
- Net Interest Income (NII) drives close to 55% of the total revenues. The revenue stream declined 16% y-o-y in 2020 to $39.8 billion, primarily due to interest rate headwinds and lower outstanding loan balances. Further, the same trend continued in the first nine months of 2021, with the NII decreasing by 13% y-o-y to $26.5 billion. We expect the stream to see some improvement in the fourth-quarter results.
- WFC reported a non-interest income of $32.5 billion in 2020 – down 14% y-o-y. However, the trend reversed, as the economic conditions improved over the first three quarters of 2021. The company posted a 24% y-o-y increase in the cumulative nine months’ non-interest revenues to $31.1 billion. This was mainly led by growth in net gains on trading and securities, investment banking fees, mortgage banking fees, card fees, investment advisory, and other asset-based fees. We expect the same momentum to continue in the fourth-quarter results.
- Overall, we expect Wells Fargo’s revenues to remain around $76.1 billion for full-year 2021.
Trefis estimates Wells Fargo’s fiscal Q4 2021 revenues to be around $18.49 billion, marginally below the $18.69 billion consensus estimate. We expect the growth in the wealth & investment management division, followed by some improvement in the core-banking business to drive the fourth-quarter results.
The fed has announced its intention to hike the interest rates in 2022. This will benefit Wells Fargo’s NII. Further, recovery in the economy is likely to boost the non-interest revenues in the subsequent quarters. Our dashboard on Wells Fargo’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.
(2) EPS is likely to remain marginally below the consensus estimates
Wells Fargo Q4 2021 adjusted earnings per share (EPS) is expected to be $1.05 per Trefis analysis, almost 4% below the consensus estimate of $1.09. The bank’s adjusted net income decreased from $17.9 billion to $1.7 billion in 2020, mainly due to a significant increase in provisions for credit losses and a 15% y-o-y drop in the top-line. That said, WFC has decreased its provisions for credit losses over the first three quarters of 2021 – cumulative nine months provisions reduced from $14.3 billion to -$3.7 billion. It has resulted in an adjusted net income of $14.8 billion over the same period.
We expect the fourth-quarter earnings to increase on a year-on-year basis. However, the provisions figure is unlikely to see a substantial decrease. Overall, Wells Fargo is likely to report an adjusted net income of $18.3 billion and annual EPS of $4.65 for full-year 2021.
(3) Stock price estimate 5% lower than the current market price
We arrive at Wells Fargo’s valuation, using an EPS estimate of around $4.65 and a P/E multiple of just above 11x in fiscal 2021. This translates into a price of $52, which is 8% below the current market price of around $56.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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|S&P 500 Return||-1%||-1%||111%|
|Trefis MS Portfolio Return||-5%||-5%||274%|
 Month-to-date and year-to-date as of 1/13/2022
 Cumulative total returns since the end of 2016