Wells Fargo: Why Buy The Stock?

6:57 pm ET, 12 Jan 2018

Wells Fargo WFC

Wells Fargo (NYSE: WFC) published quarterly earnings this morning that beat analyst EPS estimates but fell short on revenue.  The profit boost from the tax bill is visible, and the Bank is hoping for a much better 2018, having gone through a very challenging 2017.

There are several factors that make Wells Fargo stand out from the rest, which include the following: 

1.  The company’s strong organic growth (reflected by consistent revenue growth, as well as compound annual growth rate). Wells Fargo's net interest income is also anticipated to rise significantly. 

2.  Reduced margin pressure for the company that is occasioned by a gradual change in the rate environment. This has resulted in an increase in the company’s net interest margin. The company has subsequently raised its prime lending rate accordingly. 

3.  The Company’s solid business mix, strong consumer franchise, and diverse geographical presence.  Wells Fargo has a balanced spread income and highly diversified fee revenue, so it's able to guarantee consistent growth earnings and furnish households with a vast range of products. 

4.  Wells Fargo’s future expansion plans are also quite encouraging. The Company intends to spread its tentacles in the global market and also strengthen its asset management business.  It plans to do so mainly by assimilating local franchises, offering a wider range of products, and increasing more options for customers. 

5.  Wells plans to operate at the low end of the targeted range of the return on equity and the return on assets.  This shift in fundamentals is expected to help the Bank achieve its targets with time. 

Over the last year, WFC returned +14.77%. This return is higher than Financial Sector (8.99%) but lower than Money Center Banks Industry (16.97%) and S&P 500 (22.72%) returns.

Wells Fargo & Company (WFC) Stock Guide

Updated at: 8:03 pm ET, 18 Sep 2020

Before we start: if you're looking for WFC stock price, you can quickly find it out by visiting Finny and typing "WFC quote". If you're looking for a quick scoop on WFC stock (chart, price target, market cap, news and buy or sell analysis), go to Finny and look for "WFC". You'll get all this info in one place. Or you can just type "WFC news" to get the latest stock news.

Looking to buy or sell Wells Fargo & Company (WFC)? Interested in getting the full scoop on WFC, including earnings and dividends, stock forecast, buy or sell analysis and key stats? If so, you came to the right place.

In this WFC stock guide, we'll address key questions about WFC, above and beyond what you can find on Yahoo Finance, Zacks, MarketWatch or Morningstar.

Here is what you'll be able to find in this guide:

Earnings and Dividends: earnings, earnings date, dividend rate and dividend yield;
Analyst Predictions: stock forecast and analyst ratings;
Analysis: Finny Score and buy or sell analysis;
Key Stats: revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio, industry, sector, and number of employees.

And here is the list of questions we'll answer:
1. What are WFC earnings?
2. What is WFC dividend?
3. What is WFC dividend yield?
4. What is WFC stock forecast (i.e., prediction)?
5. WFC buy or sell? What is WFC Finny Score?
6. What are the reasons to buy WFC? Why should I buy WFC stock?
7. What are the reasons to sell WFC? Why should I sell WFC stock?
8. What are WFC key stats: revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio industry, sector, and number of employees?

So let's start. Scroll down to the question that interests you the most.

Earnings and Dividends

1. What are WFC earnings?

WFC trailing 12-month earnings per share (EPS) is $0.93.

2. What is WFC dividend?

WFC forward dividend is $0.40.

3. What is WFC dividend yield?

WFC forward dividend yield is 1.66%.

Analyst Predictions

4. What is WFC stock forecast (i.e., prediction)?

Based on WFC analyst price targets, WFC stock forecast is $29.62 (for a year from now). That means the average analyst price target for WFC stock is $29.62. The prediction is based on 31 analyst estimates.

The low price target for WFC is $21.00, while the high price target is $65.00.

WFC analyst rating is Hold.

Analysis

5. WFC buy or sell? What is WFC Finny Score?

#{finnyScore:75}Our quantitative analysis shows 6 reasons to buy and 2 reasons to sell WFC, resulting in Finny Score of 75.

6. What are the reasons to buy WFC? Why should I buy WFC stock?

Here are the reasons to buy WFC stock:

  • Rising interest rates and deregulation will unleash earnings power, while Wells Fargo's wide economic moat will ensure that benefits flow through to shareholders.
  • Wells Fargo's business model is difficult to duplicate. Future CEOs are likely to have been steeped in the company's culture for decades, ensuring that the company's competitive advantage is maintained.
  • Wells offers the scale advantages of a money center bank without the risks and volatility associated with extensive capital markets operations.
  • Organic growth remains a key strength at Wells Fargo, as reflected by its revenue growth story. Revenues grew at a CAGR of 1.3% over the last five years (2013-2017), supported by rise in net interest income. Moreover, growth in net interest income for 2018 is dependent on a variety of factors, including the level and of slope of the yield curve as well as deposit betas and earning asset growth trends.
  • With the gradual change in the rate environment, margin pressure for Wells Fargo seems to be easing. In 2017, the company reported a rise in net interest margin (NIM), after years of facing a declining trend.
  • Wells Fargo's growth prospects look encouraging, given its diverse geographic footprint and solid business mix which enable it to sustain consistent earnings growth. Further, strong consumer franchise allows the company to offer a vast range of products to households. The company is balanced between fee and spread income while sources of fee generation are diversified.
  • Wells Fargo’s expansion plans have historically included a large number of acquisitions including the Wachovia merger in 2008. Moreover, since 2011, the company has completed a number of opportunistic transactions. Further, the expansion moves has been supported by the purchase of a number of businesses from GE Capital in recent times.
  • Despite the macro pressure, Wells Fargo’s credit quality continues to normalize. Credit metrics continued to improve over the last few years as the overall financial condition of businesses and consumers strengthened and the housing market in many areas improved, except for the third quarter of 2012, as a result of the new regulatory guidance. This trend is expected to continue, thereby providing room to drive future earnings.
  • WFC profitability is improving. The YoY profit margin change was 2.27 percentage points. See WFC profitability chart.
  • WFC forward dividend yield is 1.66%, higher than the industry (1.38%) and sector (1.11%) forward dividend yields. See WFC forward dividend chart.
  • WFC Price/Book ratio is 0.62, which is low compared to its industry peers’ P/B ratios. See WFC forward Price/Book ratio chart.
  • WFC Price/Sales ratio is 1.58, which is low compared to its industry peers’ P/S ratios. See WFC forward Price/Sales ratio chart.
  • WFC average analyst price target ($29.62) is above its current price ($25.13). See WFC price target chart.
  • WFC cash to debt ratio is 1.47, higher than the average industry (0.16) and sector (0.18) cash to debt ratio. See WFC cash to debt chart.

7. What are the reasons to sell WFC? Why should I sell WFC stock?

Let's look at the reasons to sell WFC stock (i.e., the bear case):

  • The fraudulent account scandal will permanently damage Wells Fargo's brand and fracture its longstanding relationships with customers.
  • Branches are declining in value as customers increasingly conduct transactions online.
  • More than half of revenue depends to some extent on the yield curve, and low rates have now persisted for almost a decade.
  • Troubles mounted at Wells Fargo, following the revelation of opening of millions of unauthorized accounts, in September 2016. Recently, the bank has been slapped with new sanctions including a cap on the assets position for the past misconducts by the Federal Reserve which will impact the financial performance and result is customers attrition. ‘Cross-selling’, which has been the company’s key strength in recent years, drew regulators’ attention as they discovered that thousands of employees of the bank had unlawfully enrolled consumers in products and services without their knowledge or consent, in order to receive incentives for meeting sales targets.
  • Following the approval of its 2017 capital plan, Wells Fargo hiked its quarterly dividend to 39 cents per share in July 2017. The approved plan also includes share repurchase programs of up to $11.5 billion for the four-quarter period beginning in the third quarter of 2017. Recently, the company’s board of directors also increased share repurchase authorization by an additional 350 million shares.
  • Wells Fargo is facing challenges to control costs. Over the past few quarters, the company is experiencing increasing non-interest expenses. Notably, non-interest expenses recorded a five-year (2013-2017) CAGR of 4.6%.
  • WFC quarterly revenue growth was -60.50%, lower than the industry and sector average revenue growth (1.44% and 1.27%, respectively). See WFC revenue growth chart.
  • WFC PEG ratio (P/E adjusted for growth) is 642.97, which is high compared to its industry peers’ PEG ratios. See WFC PEG chart.

Key Stats

8. What are WFC key stats : revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio industry, sector, and number of employees?

Let's look at the key statistics for WFC:

Metrics WFC
Price $23.66
Average Price Target / Upside $29.62 / 25.22%
Average Analyst Rating Hold
Forward Dividend Yield 1.66%
Industry Banks - Global
Sector Financial Services
Number of Employees 261,700
Market Cap $99.09B
Forward P/E Ratio 11.51
Price/Book Ratio 1.58
Revenue (TTM) $62.66B
YoY Quarterly Revenue Growth -60.50%
Profit Margin 9.19%

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