What To Expect From Wells Fargo Stock In Q4?

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Wells Fargo

Wells Fargo (NYSE: WFC) is scheduled to report its fiscal Q4 2022 results on Friday, January 13, 2023. We expect Wells Fargo to top the consensus estimates of revenues and earnings. The bank posted better-than-expected results in the last quarter, with the top line increasing by 4% y-o-y to $19.5 billion. The growth was primarily driven by higher net interest income (NII), which benefited from improvement in the outstanding loan balances and net interest margin. That said, the noninterest revenues decreased in the quarter, due to a drop in the mortgage banking fees, investment advisory & other asset-based fees, and investment banking income. We expect the same trend to continue in the fourth quarter.

Our forecast indicates that Wells Fargo’s valuation is $53 per share, which is 24% above the current market price of $42. Our interactive dashboard analysis on Wells Fargo’s Earnings Preview has more details. 

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(1) Revenues expected to edge past the consensus estimates

Wells Fargo’s revenues decreased 6% y-o-y to $54.1 billion in the first three quarters of 2022. It was driven by a 27% decrease in noninterest revenues, partially offset by a 19% increase in the net interest income (NII). 

  • Net Interest Income (NII) drives close to 55% of the total revenues. The revenue stream suffered in 2020 and 2021 due to lower loan growth and interest rate headwinds. However, it recovered in the current year, thanks to the improvement in interest rates and outstanding loan balances. We expect the momentum to continue in fourth-quarter results. 
  • WFC’s noninterest income decreased by 27% y-o-y to $22.6 billion over the first nine months. It was mainly due to a significant drop in the net gains from equity securities from $3.96 billion to -$73 million, a 67% decline in mortgage banking fees, a 34% decrease in investment banking revenues, and lower investment advisory and other asset-based fees. We expect the same trend to continue in Q4.
  • Overall, we estimate Wells Fargo’s revenues to remain around $74.3 billion for the full-year 2022.

Trefis estimates Wells Fargo’s fiscal Q4 2022 revenues to be around $20.22 billion, marginally above the $20.02 billion consensus estimate. 

(2) EPS is likely to beat the consensus estimates

Wells Fargo Q4 2022 adjusted earnings per share (EPS) is expected to be $0.68 per Trefis analysis, almost 8% above the consensus estimate of $0.63. The bank’s adjusted net income decreased 36% y-o-y to $9.5 billion over the first nine months of 2022. It was partly due to higher noninterest expenses and partly because of an unfavorable increase in the provisions for credit losses. We expect the fourth-quarter results to be on similar lines. Overall, Wells Fargo is likely to report an annual GAAP EPS of $3.72 for the full-year 2022. 

(3) Stock price estimate is 24% higher than the current market price

We arrive at Wells Fargo’s valuation, using an EPS estimate of around $3.72 and a P/E multiple of just above 14x in fiscal 2022. This translates into a price of $53, which is 24% above the current market price of around $42. 

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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 Returns Jan 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 WFC Return 3% 3% -23%
 S&P 500 Return 2% 2% 75%
 Trefis Multi-Strategy Portfolio 5% 5% 229%

[1] Month-to-date and year-to-date as of 1/11/2023
[2] Cumulative total returns since the end of 2016

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