We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Among Wells Fargo’s close peers, JPMorgan (JPM - Free Report) and Citigroup Inc. (C - Free Report) are also slated to announce quarterly numbers on Jan. 15. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
WFC’s third-quarter performance benefited from higher non-interest income. However, the decrease in net interest income (NII) was spoilsport. This time, we believe the company’s performance will remain decent. The Zacks Consensus Estimate for fourth-quarter revenues of $20.61 billion suggests a 1.23% year-over-year decline.
In the past seven days, the consensus estimate for earnings for the to-be-reported quarter has been revised marginally upward to $1.34. This indicates a 3.9% increase from the prior-year quarter.
Estimate Revision Trend
Image Source: Zacks Investment Research
WFC has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average earnings surprise of 12.54%.
Earnings Surprise History
Image Source: Zacks Investment Research
Factors to Influence WFC’s Q4 Results
Loans and Net Interest Income (NII): In the fourth quarter, the Federal Reserve cut interest rates by 50 basis points to 4.25-4.5%. This, along with the rate cut in September, is likely to have offered some support to Wells Fargo’s net interest income (NII) as the rise in funding/deposit costs declined.
Also, clarity on the Fed’s rate cut path and the stabilizing macroeconomic backdrop are likely to have provided support to the lending scenario. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was decent in the first two months of the quarter. Thus, the company’s lending activity is likely to have witnessed an improvement in the quarter to be reported.
Management expects fourth-quarter NII to be in line with the third-quarter 2024 reported figure of $11.7 billion.
The Zacks Consensus Estimate for NII is pegged at $11.67 billion, which remained unchanged from the previous quarter.
Non-Interest Revenues: Mortgage rates in the fourth quarter of 2024 were close to 6.8%, slightly higher than the 6.2% observed at the end of the third quarter. Despite the central bank's interest rate cuts, mortgage rates did not decline significantly. As a result of these fluctuations, refinancing activities and origination volumes did not experience significant growth but remained at decent levels.
The Zacks Consensus Estimate for mortgage banking revenues for the fourth quarter of 2024 is pegged at $269.4 million, suggesting a 3.8% decline from the prior quarter’s levels.
The company’s investment advisory and other asset-based fee revenues are likely to have improved from higher market valuations and transactional activities. The consensus mark for investment advisory and other asset-based fee revenues is pegged at $2.5 billion for the fourth quarter 2024, indicating a sequential rise of 1.2%.
Global mergers and acquisitions (M&As) in the fourth quarter of 2024 showed marked improvement after subdued 2023 and 2022. This is expected to have supported Well Fargo’s Investment Banking (IB) fees.
Both deal value and volume were robust during the quarter, driven by solid financial performance, robust U.S. economic growth, buoyant markets and interest rate cuts. Also, the potential easing of regulatory oversight on M&As by the incoming Trump administration fueled deal-making activities. Yet, lingering geopolitical issues were a headwind.
The Zacks Consensus Estimate for IB income in the fourth quarter of 2024 is pegged at $667.5 million, which remained flat on a sequential basis.
The Zacks Consensus Estimate for Card fees for the fourth quarter of 2024 is pegged at $1.07 billion, suggesting a decline of 1.8% on a sequential basis.
The Zacks Consensus Estimate for Wells Fargo’s total non-interest income for the final quarter of 2024 is pegged at $8.75 billion, indicating an increase of nearly 1% sequentially.
Expenses: Wells Fargo’s costs are expected to have continued flaring up in the fourth quarter, given its investments in technology and digitalization efforts. This is likely to have hindered bottom-line growth in the quarter to be reported.
Asset Quality: Wells Fargo is likely to have set aside a huge amount of money for potential delinquent loans (mainly commercial loan defaults), given the expectations of higher for longer interest rate backdrop.
For the fourth quarter of 2024, the consensus mark for total non-accrual loans is pegged at $8.51 billion, suggesting a sequential rise of 4.2%. In the same quarter, the Zacks Consensus Estimate for non-performing assets of $8.65 billion indicates a 3.2% increase from the previous quarter.
What Our Model Unveils for Wells Fargo
Per our proven model, the chances of WFC beating estimates this time are decent. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is the case here, as you can see below.
Wells Fargo has an Earnings ESP of +0.68%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
In the fourth quarter, WFC shares performed impressively and outperformed the industry and the S&P 500 Index as well as its close peers, including JPM and C, during the same time frame.
Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value WFC offers investors at current levels.
Currently, WFC is trading at 12.99X forward 12 months' earnings, below the industry’s forward earnings multiple of 14.06X. The company’s valuation looks inexpensive compared with the industry average.
Price-to-Earnings (Forward 12 Months)
Image Source: Zacks Investment Research
Investment Thesis on Wells Fargo
Wells Fargo is nearing the lifting of its $1.95 trillion asset cap imposed by regulators due to the fake account scandal in 2018. According to a Reuters report from November 2024, this cap could be lifted in the first half of 2025, if it resolves its risk management and compliance issues. However, the final decision will depend on a vote from the Federal Reserve's board of governors.
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.
Additionally, the bank is actively pursuing cost-cutting measures to improve operational efficiency. These efforts include streamlining its organizational structure, closure of branches, and reduction in headcount. These strategic moves aim to lower operating expenses and enhance profitability over the long term.
Further, the company rewards its shareholders handsomely. In July 2024, the company announced a dividend hike of 14% to 40 cents per share from its prior payout. The company also has a share repurchase program in place. In July 2023, its board of directors authorized a new share repurchase program worth $30 billion. As of Sept. 30, 2024, Wells Fargo had the remaining authority to repurchase up to nearly $11.3 billion of its common stock.
Parting Thoughts on WFC
As Wells Fargo approaches to announce its fourth-quarter 2024 earnings result, the improving loan demand and lower interest rates showcase a positive picture for the bank.
Further, the potential lifting of asset cap will allow the bank to offer loans without restrictions, supporting its top-line expansion and long-term growth.
Though, the bank’s near-term costs are expected to remain high, given its investments in technology and digitalization efforts, its progress on efficiency initiatives, positions it for long-term growth.
Given strong fundamentals and discounted valuation, investors can consider adding WFC stock to their portfolio to generate healthy returns.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
How Should Investors Play Wells Fargo Stock Ahead of Q4 Earnings?
Wells Fargo & Company (WFC - Free Report) is slated to report fourth-quarter 2024 results on Jan. 15, 2025, before market open.
Among Wells Fargo’s close peers, JPMorgan (JPM - Free Report) and Citigroup Inc. (C - Free Report) are also slated to announce quarterly numbers on Jan. 15. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
WFC’s third-quarter performance benefited from higher non-interest income. However, the decrease in net interest income (NII) was spoilsport. This time, we believe the company’s performance will remain decent. The Zacks Consensus Estimate for fourth-quarter revenues of $20.61 billion suggests a 1.23% year-over-year decline.
In the past seven days, the consensus estimate for earnings for the to-be-reported quarter has been revised marginally upward to $1.34. This indicates a 3.9% increase from the prior-year quarter.
Estimate Revision Trend
Image Source: Zacks Investment Research
WFC has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average earnings surprise of 12.54%.
Earnings Surprise History
Image Source: Zacks Investment Research
Factors to Influence WFC’s Q4 Results
Loans and Net Interest Income (NII): In the fourth quarter, the Federal Reserve cut interest rates by 50 basis points to 4.25-4.5%. This, along with the rate cut in September, is likely to have offered some support to Wells Fargo’s net interest income (NII) as the rise in funding/deposit costs declined.
Also, clarity on the Fed’s rate cut path and the stabilizing macroeconomic backdrop are likely to have provided support to the lending scenario. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was decent in the first two months of the quarter. Thus, the company’s lending activity is likely to have witnessed an improvement in the quarter to be reported.
Management expects fourth-quarter NII to be in line with the third-quarter 2024 reported figure of $11.7 billion.
The Zacks Consensus Estimate for NII is pegged at $11.67 billion, which remained unchanged from the previous quarter.
Non-Interest Revenues: Mortgage rates in the fourth quarter of 2024 were close to 6.8%, slightly higher than the 6.2% observed at the end of the third quarter. Despite the central bank's interest rate cuts, mortgage rates did not decline significantly. As a result of these fluctuations, refinancing activities and origination volumes did not experience significant growth but remained at decent levels.
The Zacks Consensus Estimate for mortgage banking revenues for the fourth quarter of 2024 is pegged at $269.4 million, suggesting a 3.8% decline from the prior quarter’s levels.
The company’s investment advisory and other asset-based fee revenues are likely to have improved from higher market valuations and transactional activities. The consensus mark for investment advisory and other asset-based fee revenues is pegged at $2.5 billion for the fourth quarter 2024, indicating a sequential rise of 1.2%.
Global mergers and acquisitions (M&As) in the fourth quarter of 2024 showed marked improvement after subdued 2023 and 2022. This is expected to have supported Well Fargo’s Investment Banking (IB) fees.
Both deal value and volume were robust during the quarter, driven by solid financial performance, robust U.S. economic growth, buoyant markets and interest rate cuts. Also, the potential easing of regulatory oversight on M&As by the incoming Trump administration fueled deal-making activities. Yet, lingering geopolitical issues were a headwind.
The Zacks Consensus Estimate for IB income in the fourth quarter of 2024 is pegged at $667.5 million, which remained flat on a sequential basis.
The Zacks Consensus Estimate for Card fees for the fourth quarter of 2024 is pegged at $1.07 billion, suggesting a decline of 1.8% on a sequential basis.
The Zacks Consensus Estimate for Wells Fargo’s total non-interest income for the final quarter of 2024 is pegged at $8.75 billion, indicating an increase of nearly 1% sequentially.
Expenses: Wells Fargo’s costs are expected to have continued flaring up in the fourth quarter, given its investments in technology and digitalization efforts. This is likely to have hindered bottom-line growth in the quarter to be reported.
Asset Quality: Wells Fargo is likely to have set aside a huge amount of money for potential delinquent loans (mainly commercial loan defaults), given the expectations of higher for longer interest rate backdrop.
For the fourth quarter of 2024, the consensus mark for total non-accrual loans is pegged at $8.51 billion, suggesting a sequential rise of 4.2%. In the same quarter, the Zacks Consensus Estimate for non-performing assets of $8.65 billion indicates a 3.2% increase from the previous quarter.
What Our Model Unveils for Wells Fargo
Per our proven model, the chances of WFC beating estimates this time are decent. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is the case here, as you can see below.
Wells Fargo has an Earnings ESP of +0.68%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
WFC sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
WFC’s Price Performance & Valuation
In the fourth quarter, WFC shares performed impressively and outperformed the industry and the S&P 500 Index as well as its close peers, including JPM and C, during the same time frame.
Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value WFC offers investors at current levels.
Currently, WFC is trading at 12.99X forward 12 months' earnings, below the industry’s forward earnings multiple of 14.06X. The company’s valuation looks inexpensive compared with the industry average.
Price-to-Earnings (Forward 12 Months)
Image Source: Zacks Investment Research
Investment Thesis on Wells Fargo
Wells Fargo is nearing the lifting of its $1.95 trillion asset cap imposed by regulators due to the fake account scandal in 2018. According to a Reuters report from November 2024, this cap could be lifted in the first half of 2025, if it resolves its risk management and compliance issues. However, the final decision will depend on a vote from the Federal Reserve's board of governors.
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.
Additionally, the bank is actively pursuing cost-cutting measures to improve operational efficiency. These efforts include streamlining its organizational structure, closure of branches, and reduction in headcount. These strategic moves aim to lower operating expenses and enhance profitability over the long term.
Further, the company rewards its shareholders handsomely. In July 2024, the company announced a dividend hike of 14% to 40 cents per share from its prior payout. The company also has a share repurchase program in place. In July 2023, its board of directors authorized a new share repurchase program worth $30 billion. As of Sept. 30, 2024, Wells Fargo had the remaining authority to repurchase up to nearly $11.3 billion of its common stock.
Parting Thoughts on WFC
As Wells Fargo approaches to announce its fourth-quarter 2024 earnings result, the improving loan demand and lower interest rates showcase a positive picture for the bank.
Further, the potential lifting of asset cap will allow the bank to offer loans without restrictions, supporting its top-line expansion and long-term growth.
Though, the bank’s near-term costs are expected to remain high, given its investments in technology and digitalization efforts, its progress on efficiency initiatives, positions it for long-term growth.
Given strong fundamentals and discounted valuation, investors can consider adding WFC stock to their portfolio to generate healthy returns.