What To Expect From Wells Fargo Stock?

+32.32%
Upside
40.41
Market
53.47
Trefis
WFC: Wells Fargo logo
WFC
Wells Fargo

Wells Fargo’s stock  (NYSE: WFC) has lost roughly 10% YTD as compared to the 17% drop in the S&P500 index over the same period. Further, at its current price of $46 per share, the stock is trading 15% below its fair value of $53 – Trefis’ estimate for Wells Fargo’s valuationThe bank posted mixed results in the second quarter of 2022, with earnings topping the street expectations but revenues missing the mark. It reported total revenues of $17 billion – down 16% y-o-y, mainly driven by a 40% drop in the noninterest revenues. It suffered due to net losses from equity securities, a significant drop in mortgage banking revenues, lower investment advisory and other asset-based fees, and a decline in investment banking fees. On the flip side, the negative impact was somewhat offset by a 16% rise in the net interest income (NII) due to the impact of an increase in interest rates, higher loan balances, and a drop in long-term debt. Overall, the adjusted net income decreased 51% y-o-y to $2.8 billion in the quarter. It was due to negative growth in the top line, an unfavorable increase in the provisions for credit losses, and higher noninterest expense as a % of revenues.

The bank’s top line grew 6% y-o-y to $78.5 billion in 2021. It was driven by a 24% rise in the noninterest income, partially offset by a 10% decline in the net interest income. That said, the trend reversed in the first half of 2022. The NII increased 10% y-o-y, whereas the noninterest revenues decreased 28%. It led to an overall drop of 28% in total revenues to $34.6 billion. Further, the provisions figure and noninterest expenses as a % of revenues increased over the same period. This  translated into an adjusted net income of $6.23 billion – down 38% y-o-y. 

The bank is heavily dependent on NII, which is likely to benefit from interest rate hikes by the Federal Reserve. All in all, Wells Fargo’s revenues are forecast to remain around $73.1 billion in FY2022. Additionally, WFC’s adjusted net income margin is expected to decrease in the year, from 25.8% to around 21%, leading to an adjusted net income of $15.6 billion. This coupled with an annual EPS of $4.09 and a P/E multiple of just above 13x will lead to the valuation of $53.

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Here you’ll find our previous coverage of Wells Fargo stock, where you can track our view over time.

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 Returns Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 WFC Return -1% -10% -22%
 S&P 500 Return -1% -17% 76%
 Trefis Multi-Strategy Portfolio 1% -15% 236%

[1] Month-to-date and year-to-date as of 9/14/2022
[2] Cumulative total returns since the end of 2016

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