Wells Fargo Stock To Double Its Dividend From Third Quarter

SAN FRANCISCO, CALIFORNIA – JANUARY 23, 2020: Wells Fargo is a multinational financial services corporation based in the United States… [+] The Fargo logo can be spotted at one of their locations. (Photo courtesy of Getty Images/Alex Tai/SOPA Images/LightRocket)
Getty Images/SOPA Images/LightRocket
[07/02/2021] [Updated] Update on Wells Fargo Wells Fargo’s stock (NYSE: WFC) has risen approximately 50% YTD, and it is currently trading at $45 per share, which is just below its fair value of $46 based on Trefis’ valuation assessment. WFC, the mortgage banking behemoth, said on June 28 that the Comprehensive Capital Analysis and Review stress test process for 2021 had been completed. CCAR is a Federal Reserve annual exercise that assesses the capital requirements of banks in the United States to continue operations during times of economic and financial hardship. Last year, the Fed placed some restrictions on dividends and share buybacks by the 23 big banks as a result of the Covid-19 issue. It did, however, pass all 23 banks in its yearly stress test last week. As a result, starting in the third quarter of 2021, WFC aims to increase its common stock dividend to $0.20 per share. In addition, as part of its share repurchase plan, which began in the third quarter, it will buy back about $18 billion in common stock over the next four quarters. The capital plan, however, is subject to approval by the Board of Directors of the Company in July.
Wells Fargo’s full-year revenues of $72.3 billion were down 15% year over year, owing primarily to reduced net interest income. A reduced interest rate environment and a decline in outstanding loan balance hurt the NII, which generates more than half of overall revenues. The same trend persisted in the first quarter of FY2021, with the bank’s NII falling by 22% year over year. However, non-interest revenue increased by 45 percent year over year, more than offsetting the negative impact of decreased NII. We anticipate that non-interest income will continue to rise in the future. Furthermore, as the economy recovers, loan balances are likely to improve, albeit interest rates are likely to remain below pre-Covid-19 levels for some time. Overall, Wells Fargo’s revenue for the year is expected to be around $71.3 billion. Furthermore, due to a positive drop in provisions for credit losses, the bank’s profitability figures are expected to increase significantly this year. We predict the bank’s EPS to rise from $0.42 to $2.87 in FY2021, resulting in a valuation of around $46 based on a P/E ratio of close to 16x.
[Updated on April 30, 2021] Wells Fargo Stock Is Fairly Priced, Up 53% YTD
Wells Fargo’s stock (NYSE: WFC) has risen 83 percent since last year’s lows on March 23 and is up 53 percent year to date. Furthermore, at $46 per share, it is trading at the same level as its fair value of $46 – Trefis’ valuation estimate for Wells Fargo. In its recently disclosed first-quarter FY2021 results, WFC, the largest mortgage banker in the United States, reported better-than-expected earnings. It brought in $18.1 billion in revenue, up 2% from the previous year. This is due to a 45 percent increase in non-interest income, owing to superior mortgage production outcomes, better trading, and higher investment banking fees. Due to the reduced interest rate environment and a decrease in outstanding loans, the growth was nearly offset by a 22% decline in net interest income. In particular, the bank released $1.05 billion in loan loss reserve in the quarter, indicating that its clients’ estimated loan default risk has improved.
For the full year 2020, Wells Fargo reported revenues of $72.3 billion, down 15% year over year. The bank has a substantial loan portfolio, including $396 billion in community banking, $196 billion in commercial banking, and $255 billion in corporate and investment banking (as per 2020 figures). This makes it extremely vulnerable to interest rate movements, which have been hurting through 2020 as a result of the Federal Reserve’s zero rate policy as a result of the impact of the Covid-19 issue – In the year, WFC’s net interest margin fell 46 basis points to 2.27 percent. This had a detrimental impact on the bank’s net interest income, which accounts for over half of its entire revenue – NII fell by 16 percent year on year to $39.8 billion. A drop in outstanding loan balance due to weaker consumer demand and greater prepayments exacerbated the impact on NII. Furthermore, non-interest revenue decreased by 14% year over year, owing to reduced net profits on equities securities and lower card fees as a result of weaker consumer spending. Consumer spending levels are projected to recover as economic conditions improve, benefitting both NII and non-interest revenues. Low interest rates, on the other hand, are unlikely to return to pre-Covid-19 levels anytime soon. Overall, Wells Fargo’s sales in FY 2021 are expected to be around $71.3 billion, which is significantly lower than the amount for 2020. Notably, the bank’s sales and trading and investment banking divisions are substantially smaller than those of its peers, despite the fact that both sectors experienced remarkable growth in 2020, owing to increased trading volumes and an increase in underwriting deals.
The bank’s earnings fell in 2020, with adjusted net income falling 90 percent year over year to $1.7 billion and EPS falling from $4.08 to 0.42. This can be attributed to two factors: first, an increase in provisions for loan losses from $2.7 billion to $14.1 billion over the course of the year; and second, an increase in total operating expenses as a percentage of revenues from 68.4 percent to 79.7 percent due to higher restructuring charges and higher litigation and customer remediation accruals. To compensate for the increasing risk of loan defaults, the bank upped its provisions in 2020. In the last quarter, it did, however, release part of its loan reserves. Furthermore, as the economy improves and more individuals obtain the Covid-19 vaccine, the vaccine’s availability is expected to diminish. In FY2021, we predict the bank’s EPS to climb to $2.87. Overall, a valuation of roughly $46 is expected based on the $2.87 EPS and a P/E ratio of around 16x.
ADDITIONAL INFORMATION [UPDATED 12/29/2020] Wells Fargo is currently trading at a fair price.
Wells Fargo stock (NYSE: WFC) is still down more than 40% year to date, despite a small gain of roughly 20% from the March bottom. Wells Fargo is valued at roughly $29 per share, according to Trefis, which is slightly lower than the current market price. Wells Fargo, the largest mortgage banker in the United States, is extremely susceptible to interest rate swings, with a loan portfolio of about $399 billion in community loans and $456 billion in commercial loans (as of 2019 statistics). Wells Fargo reported sales of $18.86 billion in the third quarter, down 14% from the previous year. This can be attributable to a 5% y-o-y loss in community banking, followed by a 19% drop in wholesale banking. While the lending industry has suffered as a result of the Federal Reserve’s zero-rate policy in reaction to the Covid-19 outbreak, the bank has encountered extra challenges as a result of the Fed Asset restrictions, which limit the bank’s ability to handle loan defaults and extend credit lines (as compared to its peers). These asset growth limits, on the other hand, are expected to be abolished soon.
We anticipate a modest increase in Wells Fargo’s revenues in the fourth quarter, owing to some recovery in the community banking area. It is expected to record revenue of $72 billion in FY 2020, down 15% from the previous year. Furthermore, due to a considerable build-up in provisions for credit losses, its net income margin is predicted to shrink from 21.1 percent in 2019 to 3.1 percent in the present year, lowering the EPS figure to $0.53 in FY 2020. Following that, revenues are likely to drop slightly to $71.9 billion in FY2021. However, due to a beneficial drop in provisions for credit losses, the EPS figure is expected to improve to $2.04. This, along with a P/E ratio of about 14x, results in a $29 valuation.
[Updated on July 28, 2020] Is the stock of Wells Fargo undervalued?
The stock of Wells Fargo (NYSE: WFC) has dropped more than 53%, from $54 at the end of 2019 to roughly $25 in late March, which is also the present level.
Two things can be blamed for this: Market estimates for 2020 and near-term consumer demand were slashed as a result of the Covid-19 outbreak and the economic slump. This might have a detrimental impact on businesses and individuals, affecting their ability to repay loans and exposing Wells Fargo to significant loan losses. While the multibillion-dollar Fed stimulus created a floor and benefited several of Wells Fargo’s peers, the bank did not profit because of its lesser presence in sales and trading and investment banking.
However, we believe that investors are still too wary about Wells Fargo’s stock.
Based on a forthcoming trigger outlined below and one risk factor, Trefis forecasts Wells Fargo’s valuation to be roughly $31 per share, or around 15% higher than the current market price.
The catalyst is a better revenue trend for Wells Fargo in the second half of the year. We estimate that the corporation will generate $73.2 billion in revenue in 2020, down 14% from the previous year. Our projection is based on our expectation that the economy will expand in Q3. In most parts of the world, the lifting of shutdown restrictions is expected to boost consumer demand, leading in increased company spending. In comparison to its competitors, Wells Fargo has a smaller presence in investment banking and sales and trading. As a result, it hasn’t benefited from increased trading volumes and underwriting deals in the securities market as a result of the Fed’s stimulus. Overall, we expect the company to earn $0.74 per share in FY2020.
Following that, Wells Fargo’s revenues are predicted to rise to $74.4 billion in FY2021, owing to improvements in consumer banking and commercial banking./nRead More