Wells Fargo Stock Delivered More Than 50% Return Over The Last Twelve Months, What’s Next?

Wells Fargo’s stock (NYSE: WFC) has gained 18% YTD as compared to the 10% rise in the S&P500 index over the same period. Further, at its current price of $58 per share, the stock is trading 3% above its fair value of $56 – Trefis’ estimate for Wells Fargo’s valuation. 

Amid the current financial backdrop, WFC stock has seen extremely strong gains of 100% from levels of $30 in early January 2021 to around $60 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in WFC stock has been far from consistent. Returns for the stock were 59% in 2021, -14% in 2022, and 19% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that WFC underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could WFC face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The bank surpassed the street estimates in the fourth quarter of 2023, with total revenues increasing by 2% y-o-y to $20.5 billion. It was driven by a 17% growth in noninterest revenues, which primarily benefited from higher investment advisory & other asset-based fees, deposit-related fees, and net gains from trading activities & equity securities. However, the positive impact was partially offset by a 5% drop in the net interest income (NII). Notably, NII contributes more than 60% of the total revenues. On the cost front, the provisions for credit losses witnessed an unfavorable build-up from $957 million to $1.3 billion. However, the impact was more than offset by a 2% decline in the noninterest expenses. Overall, the adjusted net income improved 10% y-o-y to $3.16 billion. 

The bank’s top line grew 17% y-o-y to $52.4 billion in FY 2023. In terms of business segments, consumer banking revenues increased 6% y-o-y, followed by a 23% rise in commercial banking and a 26% gain in the corporate & investment banking units. Further, the wealth & investment management division recorded a marginal drop. On the expense side, the provisions figure jumped from $1.5 billion to $5.4 billion. However, noninterest expenses were reduced by 3% y-o-y, benefiting the bottom line. Altogether, it translated into a 43% increase in the adjusted net income to $17.98 billion.

Moving forward, we expect the net interest income to see negative growth over the subsequent quarters. Overall, Wells Fargo’s revenues are forecast to remain around $80.3 billion in FY2024. Additionally, WFC’s adjusted net income margin is expected to see a slight dip in the year, leading to an adjusted net income of $16.9 billion. This coupled with an annual EPS of $4.73 and a P/E multiple of just below 12x will lead to a valuation of $56.

[1] Returns as of 4/1/2024
[2] Cumulative total returns since the end of 2016

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