I am neutral on Wells Fargo & Company (NYSE: WFC) as its support from Wall Street analysts and decent upside relative to its consensus price target are offset by its weak recent fundamental performance and slightly elevated valuation multiples.
Wells Fargo & Company is a multinational financial company that offers banking, investment, mortgage, insurance, and consumer and commercial financial services. Its corporate headquarters are in San Francisco, California. The company was founded in 1929 by Henry Wells and William Fargo.
Strengths
Wells Fargo has operations in 35 countries and serves over 70 million global customers. The Financial Stability Board considers it to be a systemically important financial institution.
The company’s primary subsidiary Wells Fargo Bank, N.A., is the fourth largest bank in the United States based on total assets and is also one of the largest based on market capitalization and total assets.
The bank is also one of the Big Four Banks of the United States along with JPMorgan Chase, Bank of America, and Citigroup. The bank has about 8,050 branches and operated 13,000 ATMs.
Recent Results
Wells Fargo reported total revenue of $18.834 billion in the third quarter of 2021 ended September 30 2021. This showed a decrease from the same period of the previous year when Wells Fargo generated $19.316 billion; however, it is still slightly above analysts’ expectations of $18.35 billion. Earnings were $1.17 per share and grew by 67% year-over-year.
The Consumer Banking and Lending segment saw a decline of 4% in revenue to $8.8 billion year-over-year. The Commercial Banking segment’s revenue declined to $2.1 billion, showing a decrease of 7%.
The Corporate and Investment Banking segment saw revenue growth of 2% to $3.4 billion year-over-year. The Wealth and Investment Management revenue rose 10% to $3.6 billion while the Corporate segment generated revenue of $1.3 billion, showing a decline of 20%.
As of September 30, 2021, the company owed loans of $854 million, deposits of $1,450.9 billion and assets of $1,949.7 billion.
Analysts expect the company will report earnings per share of $1.39 in the last quarter of 2021.
Valuation Metrics
WFC stock looks slightly overpriced at the moment as its P/S ratio is 2.7x compared to its five-year average of 2.6x, its P/E ratio is 13.2x compared to its five-year average of 12.8x, and its dividend yield is 1.8% compared to its five-year average of 3.2%.
Wall Street’s Take
From Wall Street analysts, WFC earns a Moderate Buy analyst consensus based on nine Buy ratings, four Hold ratings, and zero Sell ratings in the past three months. Additionally, the average Wells Fargo price target of $54.80 puts the upside potential at 13%.
Summary and Conclusions
Well Fargo is a leading name in the banking and financial services industry. That said, it has had its brand significantly tarnished in recent years as it has faced some major scandals in some dishonest dealings with customers.
Furthermore, share price performance has been weak over that period as its fundamentals have suffered.
Moving forward, the stock does not look particularly cheap, but it also does not look extremely expensive, especially compared to the broader stock market and the historically low interest rate environment.
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Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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