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Wells Fargo Stock Rises 21.2% YTD: Should You Keep it on Your Radar?
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Wells Fargo & Company (WFC - Free Report) is gaining a lot of interest among investors. Its shares appreciated 21.2% year to date compared with the industry’s growth of 26.6%.
The stock is also trading slightly below its peers — Citigroup (C - Free Report) and Bank of America (BAC - Free Report) .
Year-to-Date Price Performance
Image Source: Zacks Investment Research
WFC is facing significant challenges with numerous penalties and sanctions related to its 2016 sales scandal, raising apprehension among investors. Nonetheless, its long-term prospects remain bright.
Analysts’ Sentiments for WFC
Analysts seem to be neutral about Wells Fargo's prospects. In the past seven days, the Zacks Consensus Estimate for 2024 and 2025 earnings has remained unchanged.
Estimate Revision Trend
Image Source: Zacks Investment Research
Let’s discuss its positives and negatives to conclude whether WFC is worth consideration or not.
Wells Fargo Hurdles: Asset Cap & Legal Scrutiny
A major disadvantage for WFC is its asset cap of $1.95 trillion. The amount was imposed by the Federal Reserve because of the 2016 sales scandal until it complies fully with regulators’ demands regarding compliance and operational risk management.
Though the company has undertaken several measures to meet regulators' requirements, the asset cap is hindering it from fully capitalizing its loan portfolio. This will likely continue to impede growth in the upcoming periods.
WFC is facing significant challenges with numerous penalties and sanctions lately. It is under government authorities' investigations on issues related to anti-money laundering (AML) and sanctions programs. In July 2024, the company faced a class action lawsuit alleging that it mismanaged its health insurance plan, forcing thousands of U.S.-based employees to overpay for prescription medications. It is also facing an advisory account cash sweep investigation by the Securities and Exchange Commission.
Why WFC's Long-Term View Looks Bright?
Wells Fargo is diverging revenue sources and reducing its reliance on net interest income (NII). The company has been methodically strengthening its corporate investment bank as it sees significant growth opportunities.
WFC significantly raised advisor retention in its wealth and investment management division and emphasized serving its consumer banking clients and independent advisers. These efforts are expected to spur development eventually. Through the Commercial Bank division, the company aims to expand its treasury management business and provide clients with its investment banking and market capabilities.
Last month, Wells Fargo announced a definitive agreement to divest its non-agency third-party servicing segment of its Commercial Mortgage Servicing business to Trimont. The transaction is expected to close in early 2025, subject to customary closing conditions.
In line with this divesture, Kara McShane, executive vice president and head of Wells Fargo Commercial Real Estate, said, “This transaction is consistent with Wells Fargo’s strategy of focusing on businesses that are core to our consumer and corporate clients.”
As the path for the Fed’s rate cuts is clear and the U.S. economy is on solid footing, the company is likely to witness a positive trend in its NII. While high rates have led to a significant jump in NII, they have driven up funding and deposit costs, thus squeezing margins.
The company anticipates a 7-9% decline in 2024 NII due to subdued loan demand, interest rates, asset repricing and competitive market conditions. Management stated that as the Fed starts rate cuts, deposit pricing will decline, thus aiding NII growth.
On Thursday, WFC crossed the 50-day simple moving average, indicating robust upward momentum and price stability. This underscores positive market sentiments and confidence in the company's financial health and prospects.
50-Day Moving Average
Image Source: Zacks Investment Research
Wells Fargo Trading 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 10.95X, below the industry average of 11.94X.
Image Source: Zacks Investment Research
The stock is cheaper than its peer, BAC’s current forward 12-month P/E of 11.57X. WFC is trading at a premium to C’s current forward 12-month P/E of 9.33X.
Should You Keep Wells Fargo on Your Radar?
The company’s efforts to diversify its revenue streams and focus on core operations are likely to support its growth trajectory in the long term.
Also, WFC rewards its shareholders handsomely. In July 2024, it received approval to raise its dividend by 14.3% to 40 cents per share. In the past five years, it hiked dividends five times, with an annualized growth rate of 3.66%.
With an asset cap in place, WFC’s loan balance is not likely to improve much, hindering its growth potential. The company’s performance in the future will be greatly influenced by the Fed’s interest rate cuts starting this month. Also, its ongoing legal scrutiny is a matter of concern. Investors need to keep a watch on these issues.
Hence, current shareholders should maintain their position in this Zacks Rank #3 (Hold) stock. Potential new investors might keep WFC stock on their radar and observe how it navigates near-term challenges. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Wells Fargo Stock Rises 21.2% YTD: Should You Keep it on Your Radar?
Wells Fargo & Company (WFC - Free Report) is gaining a lot of interest among investors. Its shares appreciated 21.2% year to date compared with the industry’s growth of 26.6%.
The stock is also trading slightly below its peers — Citigroup (C - Free Report) and Bank of America (BAC - Free Report) .
Year-to-Date Price Performance
WFC is facing significant challenges with numerous penalties and sanctions related to its 2016 sales scandal, raising apprehension among investors. Nonetheless, its long-term prospects remain bright.
Analysts’ Sentiments for WFC
Analysts seem to be neutral about Wells Fargo's prospects. In the past seven days, the Zacks Consensus Estimate for 2024 and 2025 earnings has remained unchanged.
Estimate Revision Trend
Let’s discuss its positives and negatives to conclude whether WFC is worth consideration or not.
Wells Fargo Hurdles: Asset Cap & Legal Scrutiny
A major disadvantage for WFC is its asset cap of $1.95 trillion. The amount was imposed by the Federal Reserve because of the 2016 sales scandal until it complies fully with regulators’ demands regarding compliance and operational risk management.
Though the company has undertaken several measures to meet regulators' requirements, the asset cap is hindering it from fully capitalizing its loan portfolio. This will likely continue to impede growth in the upcoming periods.
WFC is facing significant challenges with numerous penalties and sanctions lately. It is under government authorities' investigations on issues related to anti-money laundering (AML) and sanctions programs. In July 2024, the company faced a class action lawsuit alleging that it mismanaged its health insurance plan, forcing thousands of U.S.-based employees to overpay for prescription medications. It is also facing an advisory account cash sweep investigation by the Securities and Exchange Commission.
Why WFC's Long-Term View Looks Bright?
Wells Fargo is diverging revenue sources and reducing its reliance on net interest income (NII). The company has been methodically strengthening its corporate investment bank as it sees significant growth opportunities.
WFC significantly raised advisor retention in its wealth and investment management division and emphasized serving its consumer banking clients and independent advisers. These efforts are expected to spur development eventually. Through the Commercial Bank division, the company aims to expand its treasury management business and provide clients with its investment banking and market capabilities.
Last month, Wells Fargo announced a definitive agreement to divest its non-agency third-party servicing segment of its Commercial Mortgage Servicing business to Trimont. The transaction is expected to close in early 2025, subject to customary closing conditions.
In line with this divesture, Kara McShane, executive vice president and head of Wells Fargo Commercial Real Estate, said, “This transaction is consistent with Wells Fargo’s strategy of focusing on businesses that are core to our consumer and corporate clients.”
As the path for the Fed’s rate cuts is clear and the U.S. economy is on solid footing, the company is likely to witness a positive trend in its NII. While high rates have led to a significant jump in NII, they have driven up funding and deposit costs, thus squeezing margins.
The company anticipates a 7-9% decline in 2024 NII due to subdued loan demand, interest rates, asset repricing and competitive market conditions. Management stated that as the Fed starts rate cuts, deposit pricing will decline, thus aiding NII growth.
On Thursday, WFC crossed the 50-day simple moving average, indicating robust upward momentum and price stability. This underscores positive market sentiments and confidence in the company's financial health and prospects.
50-Day Moving Average
Wells Fargo Trading 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 10.95X, below the industry average of 11.94X.
The stock is cheaper than its peer, BAC’s current forward 12-month P/E of 11.57X. WFC is trading at a premium to C’s current forward 12-month P/E of 9.33X.
Should You Keep Wells Fargo on Your Radar?
The company’s efforts to diversify its revenue streams and focus on core operations are likely to support its growth trajectory in the long term.
Also, WFC rewards its shareholders handsomely. In July 2024, it received approval to raise its dividend by 14.3% to 40 cents per share. In the past five years, it hiked dividends five times, with an annualized growth rate of 3.66%.
With an asset cap in place, WFC’s loan balance is not likely to improve much, hindering its growth potential. The company’s performance in the future will be greatly influenced by the Fed’s interest rate cuts starting this month. Also, its ongoing legal scrutiny is a matter of concern. Investors need to keep a watch on these issues.
Hence, current shareholders should maintain their position in this Zacks Rank #3 (Hold) stock. Potential new investors might keep WFC stock on their radar and observe how it navigates near-term challenges. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.