Is Wells Fargo Stock Fairly Priced?

-5.01%
Downside
70.34
Market
66.81
Trefis
WFC: Wells Fargo logo
WFC
Wells Fargo

Wells Fargo’s stock  (NYSE: WFC) has made negligible gains YTD as compared to the 17% rise in the S&P500 index over the same period. Further, at its current price of $41 per share, the stock is trading 17% below its fair value of $50 – Trefis’ estimate for Wells Fargo’s valuation

Interestingly, Wells Fargo stock had a Sharpe Ratio of almost Zero since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.29 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

The bank outperformed the consensus estimates in the second quarter of 2023, with total revenues increasing by 20% y-o-y to $20.53 billion. It was mainly driven by a 29% growth in the net interest income (NII), followed by an 8% rise in the non-interest revenues. The NII benefited from higher interest rates and loan growth in both consumer and commercial portfolios. Similarly, the noninterest income was up due to a 152% improvement in the net gains from trading activities and lower losses from equity securities. On the cost front, the provisions for credit losses witnessed an unfavorable build-up from $580 million to $1.7 billion. However, the impact was offset by a drop in noninterest expenses as a % of revenues from around 75% to 63%. Overall, the adjusted net income grew 63% y-o-y to $4.66 billion. 

Relevant Articles
  1. Wells Fargo Stock: What If the Asset Cap Is Lifted?
  2. Net Interest Income Down 9% In Q2, What To Expect From Wells Fargo Stock?
  3. Wells Fargo Stock Delivered More Than 50% Return Over The Last Twelve Months, What’s Next?
  4. Where Is Wells Fargo Stock Headed?
  5. Wells Fargo Stock Is Trading Below Its Fair Value
  6. What To Expect From Wells Fargo Stock In Q4?

The bank’s top line grew 19% y-o-y to $41.26 billion in the first half of FY 2023. It was because of a 36% jump in the NII, partially offset by a 4% decrease in the noninterest revenues. Further, the noninterest expense as a % of revenues decreased over the same period, offsetting the negative impact of higher provisions figure. Altogether, this translated into a 47% increase in the adjusted net income to $9.37 billion.

Moving forward, we expect the same trend to continue in Q3 2023. All in all, Wells Fargo’s revenues are estimated to remain around $81.4 billion in FY2023. Additionally, WFC’s adjusted net income margin is expected to improve in the year, leading to an adjusted net income of $17.6 billion. This coupled with an annual EPS of $4.91 and a P/E multiple of just above 10x will lead to a valuation of $50.

 Returns Sep 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 WFC Return 0% 0% -25%
 S&P 500 Return 0% 17% 100%
 Trefis Reinforced Value Portfolio -2% 29% 563%

[1] Month-to-date and year-to-date as of 9/12/2023
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates