Wells Fargo’s stock (NYSE: WFC) has seen a decline of 17% year-to-date, in stark contrast to the 18% rise in the S&P500 index over the same period. Its peer, Bank of America (NYSE: BAC), has experienced a 25% increase in its stock price. Currently trading at $58 per share, WFC’s stock is estimated to be undervalued at 10% below its fair value of $64 as per Trefis’ valuation. Despite this, WFC has seen strong gains of 100% from early 2021 levels of $30, reaching around $60 now, outperforming the S&P 500’s 50% increase over a three-year period.
WFC’s stock performance over the past few years has been inconsistent, with returns of 59% in 2021, -14% in 2022, and 19% in 2023, underperforming the S&P 500 during the last year. Beating the S&P 500 has been challenging for individual stocks, including industry heavyweights like JPM, V, and MA, as well as tech giants like GOOG, TSLA, and MSFT. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500 each year, indicating better returns with less risk. With the current macroeconomic environment characterized by high oil prices and elevated interest rates, it remains to be seen if WFC will face a similar situation as in 2023 and underperform the S&P 500 or see a strong improvement in the next 12 months.
In the second quarter of 2024, Wells Fargo reported total revenues of $20.7 billion, up 1% year-over-year, driven by a 9% decrease in net interest income, offset by a 19% increase in total noninterest revenues. The decline in net interest income was attributed to a drop in net interest margin due to higher funding costs. On the other hand, noninterest revenues benefitted from higher investment banking fees, trading gains, and advisory fees. Despite a 28% decrease in provisions for credit losses, total noninterest expenses as a percentage of revenues increased. Overall, adjusted net income was $4.64 billion, matching the Q2 2023 figure.
In fiscal year 2023, Wells Fargo’s total revenues increased by 17% year-over-year to $52.4 billion, with growth in consumer banking, commercial banking, and corporate & investment banking segments. While provisions for credit losses saw a significant increase from $1.5 billion to $5.4 billion, a slight decrease in noninterest expenses partially offset the impact. Adjusted net income improved by 43% to $17.98 billion. Going forward, noninterest income is expected to drive Wells Fargo’s results in Q3. Revenues for FY2024 are estimated to remain around $81.8 billion, with an adjusted net income of $18.1 billion and an annual EPS of $5.10, resulting in a valuation of $64 based on a P/E multiple of just under 13x.
