Better Buy for 2022: Wells Fargo vs. JPMorgan Chase

NYSE: WFC | Wells Fargo & Company  News, Ratings, and Charts

WFC – As the interest rate hike is looming, the banking industry should witness significant investor attention. In addition, an increase in financial transactions is driving the industry’s growth. So, banking giants Wells Fargo (WFC) and JPMorgan (JPM) should be in focus. But which of these stocks is a better buy now? Read more to find out.

While the near-zero interest-rate environment remains unchanged for now, the banking sector has witnessed a steady recovery on the back of increasing financial transactions and capital market activities. Moreover, Goldman Sachs (GS) expects the Federal Reserve to raise interest rates four times this year, one more than the previous forecast due to persistently high inflation and a labor market near full employment. In addition, the central bank is expected to reduce its bond holdings soon, which should help the banking companies expand their interest margin. According to Globe Newswire, the global financial services market is expected to grow at a CAGR of 6% by 2025.

One of the leading financial services companies, Wells Fargo & Company (WFC), provides diversified banking, investment, mortgage products and services, and consumer and commercial finance. It operates through four segments: consumer banking and lending, commercial banking, corporate and investment banking, and wealth and investment management. JPMorgan Chase & Co. (JPM) operates in four segments: Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset & Wealth Management.

WFC has gained 9% over the past month, while JPM has returned 2.8%. Also, WFC’s 26.2% gains over the past six months are significantly higher than JPM’s 8.8% returns. But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On December 13, 2021, WFC and HSBC Bank plc announced an agreement to use a blockchain-based solution for the netting and settlement of matched foreign exchange transactions. The strategic agreement optimizes the settlement of foreign exchange transactions and reduces settlement risk, leading to increasing demand for their service.

On December 08, 2021, JPM announced that it has helped more than two million customers save on overdraft service fees through new enhancements to checking accounts that give them more flexibility when they are just a little short on any given day. The new enhancements continue the bank’s efforts to give customers more access and value, leading to increased demand for its service.

Recent Financial Results

WFC’s net revenue decreased 2.5% year-over-year to $18.83 billion for the fiscal third quarter ended September 30, 2021. However, its net income grew 59.3% year-over-year to $5.12 billion, while its EPS came in at $1.17, up 67.1% year-over-year.

JPM’s net revenue increased 2% year-over-year to $30.44 billion for the third quarter ended September 30, 2021. The company’s net income grew 24% year-over-year to $11.69 billion. Also, its EPS came in at $3.74, up 16% year-over-year.

Past and Expected Financial Performance

WFC’s total assets grew at a CAGR of 1.4% over the past three years. Analysts expect WFC’s revenue to decrease 2.8% for the quarter ending March 31, 2022, and 5.3% in fiscal 2022. The company’s EPS is expected to decline 22.5% for the quarter ending March 31, 2022, and 20.6% in fiscal 2022. However, its EPS is expected to grow at a rate of 115.9% per annum over the next five years.

On the other hand, JPM’s total assets grew at a CAGR of 12.8% over the past three years. The company’s revenue is expected to increase 0.9% for the quarter ending March 31, 2022, and 0.3% in fiscal 2022. However, Its EPS is expected to decline 34.9% for the quarter ending March 31, 2022, but grow 20% in fiscal 2022. JPM’s EPS is expected to grow at a rate of 11.3% per annum over the next five years.

Profitability

JPM’s trailing-12-month revenue is 1.68 times what WFC generates. Moreover, JPM is more profitable with a net income margin of 38.17% compared to WFC’s 24.06%.

Furthermore, JPM’s ROE and ROA of 17.85% and 1.43% are higher than WFC’s 10.75% and 1.03%, respectively.

Valuation

In terms of forward non-GAAP PEG, WFC is currently trading at 1x, 28.2% higher than JPM’s 0.78x. Moreover, WFC’s forward non-GAAP P/E ratio of 12.69x is 13.8% higher than WFC’s 11.15x.

So, JPM is relatively affordable here.

POWR Ratings

WFC has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, JPM has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

WFC has a B grade for Growth, consistent with analysts’ expectations that its EPS will increase exponentially in the upcoming years. On the other hand, JPM has a D grade for Growth, in sync with analysts’ expectations that its EPS will grow modestly in the upcoming years.

Of the 10 stocks in the Money Center Banks industry, WFC is ranked #1, while JPM is ranked #4.

Beyond what I’ve stated above, we have also rated the stocks for Sentiment, Stability, Momentum, Quality, and Value. Click here to view all the WFC ratings. Also, get all the JPM ratings here.

The Winner

With increasing interest rates, the banking industry is expected to witness rising revenues. While both WFC and JPM are expected to gain in the long run, I believe it is better to invest in WFC now because of its better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Money Center Banks industry here.


WFC shares were trading at $54.73 per share on Monday afternoon, down $0.04 (-0.07%). Year-to-date, WFC has gained 14.07%, versus a -2.75% rise in the benchmark S&P 500 index during the same period.


About the Author: Nimesh Jaiswal


Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...


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