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Wells Fargo (WFC) Stock has Surged Since Earnings, Can It Last?
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About a month has gone by since the last earnings report for Wells Fargo (WFC - Free Report) . Shares have added about 15.6 % in the past month, easily outpacing the S&P 500 in that time frame.
Will the recent positive trend continue leading up to their next earnings release, or is the stock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
Wells Fargo Tops Q3 Earnings, Costs & Provisions Up
Buoyed by a strong top-line growth, Wells Fargo’s third-quarter 2016 recorded a positive earnings surprise of about 1%. The company’s earnings of $1.03 per share beat the Zacks Consensus Estimate by $0.01. However, it compared unfavorably with the prior-year quarter’s earnings of $1.05 per share.
Wells Fargo witnessed organic growth in revenues. Moreover, a strong capital position acted as a tailwind. However, higher provisions and expenses were the dampeners.
Notably, the company did not witness any reserve build or release during the quarter, consistent with third-quarter 2015. Third-quarter net income applicable to common stock came in at $5.2 billion, down 4% year over year.
Revenues Up, Expenses Rise
The quarter’s total revenue came in at $22.3 billion, surpassing the Zacks Consensus Estimate of $22 billion. Revenues also grew around 2% on a year-over-year basis.
Furthermore, on a year-over-year basis, revenue generation at the business segments was impressive. Wealth and Investment Management and the Wholesale Banking segments’ total quarterly revenue jumped around 5.7% and 13%, respectively. However, Community Banking segment’s revenues decreased 4.2%.
Wells Fargo’s net interest income in the quarter came in at approximately $12 billion, up 4% year over year. Increased interest income from trading assets and other interest income drove the results. However, net interest margin contracted 14 basis points year over year to 2.82%, primarily due to growth in long-term debt and deposits, partially offset by the benefit of earning asset growth.
Non-interest income came in at around $10.4 billion, almost in line with the prior-year quarter. Lease income and other non-interest income increased while there was a fall in net gains from equity investments and debt securities.
On the other hand, non-interest expense at Wells Fargo was $13.3 billion, up 7% from the prior-year quarter. The rise in expenses was primarily due to higher employee benefits and FDIC and other deposit assessment-related expenses.
The company’s efficiency ratio was 59.4%, up from 56.7% recorded in the prior-year quarter and above the targeted efficiency ratio range of 55–59%. A rise in efficiency ratio indicates a fall in profitability. Wells Fargo expects the efficiency ratio to remain at an elevated level, going forward.
Loans and Deposits Rise
As of Sep 30, 2016, total loans were $961.3 billion, almost in line with the prior quarter. Total deposits were $1.3 trillion, up 2% from the prior quarter.
Credit Quality
Allowance for credit losses, including the allowance for unfunded commitments, totaled $12.7 billion as of Sep 30, 2016, increasing from $12.6 billion as of Sep 30, 2015.
Provision for credit losses was $805 million, up 14.5% year over year. Net charge-offs were $805 million or 0.33% of average loans in the reported quarter, up from the prior-year quarter net charge-offs of $703 million (0.31%). Nonetheless, non-performing assets fell 9.8% to $12.0 billion in the quarter from $13.3 billion in the prior-year quarter.
How have estimates been moving since then?
Following the release, and in the last month, investors have witnessed an upward trend for fresh estimates. There have been four revisions higher for the current quarter compared to two lower. However, the full year time frame has been more mixed, as we have seen three estimates higher and four lower for the current year figures, in the past one month look.
At this time, Wells Fargo's stock has a poor Growth score of 'F', however, its momentum is doing a bit better with a 'D'. One positive though, is the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy. This solid grade on the value front is due in part to the company's forward PE of just 13.2, a level that is better than the industry at large (and the market overall too).
Overall though, the company has a grade of just 'C' for its overall fundamental score, so a mixed bag on this front for WFC investors to say the least.
Outlook
While estimates have been broadly trending upward for the stock, the magnitude of these revisions hasn't been very impressive. As a result, shares of WFC have a Zacks Rank # 3 (hold), meaning that we are expecting an in-line return from WFC in the next few months.
So although Wells Fargo has some nice catalysts going forward, including rising rates, we think the company is just a hold right now. Considering the top 20% industry rank, investors may want to consider looking elsewhere in the banking sector for picks, as there are plenty in the segment with better ranks or more promising fundamental metrics at this time (see all the Major Regional Bank stocks here).
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Wells Fargo (WFC) Stock has Surged Since Earnings, Can It Last?
About a month has gone by since the last earnings report for Wells Fargo (WFC - Free Report) . Shares have added about 15.6 % in the past month, easily outpacing the S&P 500 in that time frame.
Will the recent positive trend continue leading up to their next earnings release, or is the stock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
Wells Fargo Tops Q3 Earnings, Costs & Provisions Up
Buoyed by a strong top-line growth, Wells Fargo’s third-quarter 2016 recorded a positive earnings surprise of about 1%. The company’s earnings of $1.03 per share beat the Zacks Consensus Estimate by $0.01. However, it compared unfavorably with the prior-year quarter’s earnings of $1.05 per share.
Wells Fargo witnessed organic growth in revenues. Moreover, a strong capital position acted as a tailwind. However, higher provisions and expenses were the dampeners.
Notably, the company did not witness any reserve build or release during the quarter, consistent with third-quarter 2015. Third-quarter net income applicable to common stock came in at $5.2 billion, down 4% year over year.
Revenues Up, Expenses Rise
The quarter’s total revenue came in at $22.3 billion, surpassing the Zacks Consensus Estimate of $22 billion. Revenues also grew around 2% on a year-over-year basis.
Furthermore, on a year-over-year basis, revenue generation at the business segments was impressive. Wealth and Investment Management and the Wholesale Banking segments’ total quarterly revenue jumped around 5.7% and 13%, respectively. However, Community Banking segment’s revenues decreased 4.2%.
Wells Fargo’s net interest income in the quarter came in at approximately $12 billion, up 4% year over year. Increased interest income from trading assets and other interest income drove the results. However, net interest margin contracted 14 basis points year over year to 2.82%, primarily due to growth in long-term debt and deposits, partially offset by the benefit of earning asset growth.
Non-interest income came in at around $10.4 billion, almost in line with the prior-year quarter. Lease income and other non-interest income increased while there was a fall in net gains from equity investments and debt securities.
On the other hand, non-interest expense at Wells Fargo was $13.3 billion, up 7% from the prior-year quarter. The rise in expenses was primarily due to higher employee benefits and FDIC and other deposit assessment-related expenses.
The company’s efficiency ratio was 59.4%, up from 56.7% recorded in the prior-year quarter and above the targeted efficiency ratio range of 55–59%. A rise in efficiency ratio indicates a fall in profitability. Wells Fargo expects the efficiency ratio to remain at an elevated level, going forward.
Loans and Deposits Rise
As of Sep 30, 2016, total loans were $961.3 billion, almost in line with the prior quarter. Total deposits were $1.3 trillion, up 2% from the prior quarter.
Credit Quality
Allowance for credit losses, including the allowance for unfunded commitments, totaled $12.7 billion as of Sep 30, 2016, increasing from $12.6 billion as of Sep 30, 2015.
Provision for credit losses was $805 million, up 14.5% year over year. Net charge-offs were $805 million or 0.33% of average loans in the reported quarter, up from the prior-year quarter net charge-offs of $703 million (0.31%). Nonetheless, non-performing assets fell 9.8% to $12.0 billion in the quarter from $13.3 billion in the prior-year quarter.
How have estimates been moving since then?
Following the release, and in the last month, investors have witnessed an upward trend for fresh estimates. There have been four revisions higher for the current quarter compared to two lower. However, the full year time frame has been more mixed, as we have seen three estimates higher and four lower for the current year figures, in the past one month look.
WELLS FARGO-NEW Price and Consensus
WELLS FARGO-NEW Price and Consensus | WELLS FARGO-NEW Quote
VGM Scores
At this time, Wells Fargo's stock has a poor Growth score of 'F', however, its momentum is doing a bit better with a 'D'. One positive though, is the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy. This solid grade on the value front is due in part to the company's forward PE of just 13.2, a level that is better than the industry at large (and the market overall too).
Overall though, the company has a grade of just 'C' for its overall fundamental score, so a mixed bag on this front for WFC investors to say the least.
Outlook
While estimates have been broadly trending upward for the stock, the magnitude of these revisions hasn't been very impressive. As a result, shares of WFC have a Zacks Rank # 3 (hold), meaning that we are expecting an in-line return from WFC in the next few months.
So although Wells Fargo has some nice catalysts going forward, including rising rates, we think the company is just a hold right now. Considering the top 20% industry rank, investors may want to consider looking elsewhere in the banking sector for picks, as there are plenty in the segment with better ranks or more promising fundamental metrics at this time (see all the Major Regional Bank stocks here).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 days. Click to get this free report >>