Shares of Wells Fargo & Company WFC have soared 46.3% year-to-date compared with the industry’s rise of 44.4%. The stock has also fared better than its peers, JPMorgan JPM and Morgan Stanley MS, over the same time frame.
Price Performance
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The stock is trading above its 50-day moving average, indicating a bullish sentiment among investors.
50-Day Moving Average
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Let us find out the reasons behind WFC’s solid performance this year and how to play the stock in 2025.
Wells Fargo Progresses to Fix Compliance Problems
At the Goldman Sachs 2024 U.S. Financial Services Conference held on Dec. 11, Wells Fargo’s CEO Charlie Scharf expressed confidence in the bank's progress to fix compliance problems following its years-long fake accounts scandal, detailing its efforts to implement risk controls. "For every one of our consent orders that we have, for every one of our regulatory deliverables, we have extremely detailed plans in place that the regulators have reviewed,” Scharf stated.
Last month, Reuters reported that WFC is in the final stages of meeting its regulatory requirements to remove the $1.95-trillion asset cap. This asset cap was imposed in 2018 following the revelation of its fake account scandal. Per the report, the asset cap could be removed in the first half of 2025, provided that the bank resolves its risk management and compliance issues. However, the decision to lift the restriction would require voting from the Federal Reserve's board of governors.
In February 2024, the 2016 consent order issued by the Office of the Comptroller of Currency related to unsafe sales practices was terminated. This development was an important step toward the potential lifting of the asset cap.
Given that loans are among the largest assets a bank can hold, lifting the asset cap will mark a turning point for Wells Fargo. This will allow the bank to offer loans without restrictions, supporting its top-line expansion and long-term growth.
WFC’s Efforts to Achieve Cost Efficiency
Wells Fargo’s prudent expense management initiatives have been supporting its financials. Since third-quarter 2020, the company has been actively engaged in cost-cutting measures, including streamlining organizational structure, branch closures and headcount reductions. In the third quarter of 2024, the company’s headcount declined nearly 25% from the third quarter of 2020.
Wells Fargo also keeps investing in and optimizing its branch network. It is being more deliberate about branch location strategy, as the number of branches declined to 4,196 as of Sept. 30, 2024, from 5,229 at the end of the third quarter of 2020.
Driven by these initiatives, WFC’s non-interest expenses declined 13.8% at the end of the third quarter of 2024 from the third quarter of 2020.
Wells Fargo to Benefit From Fed Rate Cuts
The Federal Reserve’s aggressive start to monetary policy easing is likely to support WFC’s net interest income (NII) over time. The Fed lowered the interest rates twice since September. At present, the fed fund rates are around 4.5-4.75%. The Fed funds futures now indicate a 97.1% chance of a 25-basis-point rate cut at the FOMC meeting later this week, according to CMEGroup’s FedWatch Tool.
The rate cut is a positive development for WFC, which is under increasing funding cost pressures. While high rates have led to a significant jump in NII, they have raised funding and deposit costs, thus squeezing the company’s net interest margin (NIM).
Wells Fargo's NII and NIM have been subdued by the increased funding costs as the high-interest rate environment weighed on it. Management expects 2024 NII to drop 9% from the year-ago period. However, with the central bank expected to keep lowering interest rates, it will support NIM expansion going forward.
WFC’s Impressive Capital Distribution
Wells Fargo rewards its shareholders handsomely. In July 2024, the company announced a dividend hike of 14% to 40 cents per share from its prior payout. It has increased its dividend five times over the past five years.
WFC has an annualized dividend growth rate of 10.8%, with a payout ratio of 30%.
Wells Fargo also has a share repurchase program in place. In July 2023, the company’s board of directors authorized a share repurchase program worth $30 billion. In the first nine months of 2024, Wells Fargo repurchased more than $15 billion worth of shares. As of Sept. 30, 2024, the company had the authority to repurchase up to $11.3 billion of common stock.
WFC has a strong liquidity position, with a liquidity coverage ratio of 127% as of Sept. 30, 2024, which has exceeded its regulatory minimum of 100%. Its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $185.5 billion as of the same date.
Given its robust capital position and ample liquidity, the company’s capital deployment activities seem sustainable.
Bullish Analyst Sentiments for WFC
Over the past 60 days, the Zacks Consensus Estimate for WFC’s 2024 and 2025 earnings has moved upward. The 2024 estimate indicates a year-over-year decline of 2.9%, while the metric is expected to rise 3.9% for 2025.
Estimate Revision Trend
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Earnings Estimate
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
WFC Stock Trades at a Discount
From a valuation standpoint, Wells Fargo appears somewhat inexpensive relative to the industry. The company is currently trading at a discount with a forward 12-month P/E multiple of 12.89X, below the industry average of 14.16X.
Price-to-Earnings F12M
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The stock is also significantly cheaper than its peer, MS and JPM’s current forward 12-month P/E of 16.20X and 14.28X, respectively.
Should You Bet on Wells Fargo Stock Now?
Wells Fargo’s progress to fix compliance problems will help lift the asset cap.This will allow the company to offer loans without restrictions, supporting the top-line expansion. Its progress on efficiency initiatives, such as branch and footprint reduction, will support cost reduction and drive bottom-line growth.
With a decent liquid profile, the capital distribution move seems sustainable. The Fed rate cuts will support its NII and NIM growth over the long run. Its inexpensive valuation and positive estimate revisions make the stock worth considering.
Hence, investors should consider investing their cash in WFC at its current price levels for solid long-term returns.
Wells Fargo currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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