Wells Fargo’s stock (NYSE: WFC) has lost roughly 12% YTD as compared to the 16% drop in the S&P500 index over the same period. Further, at its current price of $42 per share, the stock is trading 20% below its fair value of $53 – Trefis’ estimate for Wells Fargo’s valuation. The bank posted better-than-expected results in the third quarter of 2022, with total revenues of $19.5 billion – up 4% y-o-y. It was mainly driven by a 36% jump in the net interest income (NII), partially offset by a 25% decrease in the noninterest revenues. The growth in NII was driven by loan growth and improvement in the interest rate environment. On the flip side, the noninterest revenues primarily suffered due to a 74% drop in the mortgage banking fees, a 27% decrease in the investment advisory & other asset-based fees, and lower investment banking income. Further, the provisions for credit losses increased from -$1.4 billion to $784 million in the quarter. This coupled with higher noninterest expenses as a % of revenues led to an adjusted net income of $3.25 billion – down 32% y-o-y.
The bank’s top line decreased 6% y-o-y to $54.1 billion in the first nine months of 2022. It was driven by a 24% rise in the commercial banking segment, followed by an 8% increase in corporate & investment banking and a 4% growth in the wealth management units. On the cost front, the provisions for credit losses witnessed an unfavorable build-up from -$3.7 billion to $577 million. In addition, the noninterest expenses also increased over the same period. It resulted in an adjusted net income of $9.5 billion – down 36% y-o-y.
Moving forward, we expect the NII to continue its growth momentum in Q4. Altogether, Wells Fargo’s revenues are estimated to remain around $74.34 billion in FY2022. Additionally, WFC’s adjusted net income margin is expected to decrease in the year, from 25.8% to around 20%, leading to an adjusted net income of $14.7 billion. This coupled with an annual EPS of $3.72 and a P/E multiple of just above 14x will lead to a valuation of $53.
|S&P 500 Return||-2%||-16%||78%|
|Trefis Multi-Strategy Portfolio||-1%||-18%||230%|
 Month-to-date and year-to-date as of 12/15/2022
 Cumulative total returns since the end of 2016