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. In comparison, established financial services company JPMorgan Chase & Co. (JPM) operates in four segments: Consumer & Community Banking; Corporate & Investment Bank; Commercial Banking; and Asset & Wealth Management.

Even though the near-zero interest-rate environment remains unchanged amid concerns over the pace of economic recovery, most banking stocks have rebounded this year, with rising financial transactions and capital market activities driving the non-interest component of their revenues. Furthermore, the Fed signaled two interest rate hikes as soon as late 2023. In addition, it recently indicated its willingness to reduce asset purchases before the end of the year, which should help banking companies expand their interest income. According to Globe Newswire, the global financial services market is expected to grow at a 9.9% CAGR to  $22.5 trillion this year. Consequently, both WFC and JPM should benefit.

WFC’s shares have gained 17.2% in price over the past six months, while JPM’s shares have returned 4.3%. Also, WFC’s 80.1% gains over the past year are significantly higher than JPM’s 57.4% returns. Moreover, WFC is the clear winner with 51.5% gains versus JPM’s 31.5% over the past nine months.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

WFC paid a $0.20 per share quarterly dividend on September 1, representing a 100% increase from the previous $0.10 quarterly dividend. Also,  the company has consistently paid quarterly dividends for the past 22 years, which represents its financial strength.

JPM announced on June 29, 2021, that it had agreed to acquire OpenInvest, a leading financial technology company that helps financial professionals customize and report on values-based investments. The move is expected to expand the company’s portfolio of products and services in the sustainable investing space.

Recent Financial Results

WFC’s net revenue increased 10.8% year-over-year to $20.27 billion for its fiscal second quarter, ended June 30, 2021. The company’s net income grew 30.3% sequentially to $6.04 billion, while its EPS came in at $1.38, up 35.3% sequentially.

JPM’s net revenue decreased 7% year-over-year to $31.39 billion for the second quarter. ended June 30, 2021. Its net income declined 16% sequentially to $11.95 billion. Also, its EPS came in at $3.78, down 16% sequentially.

Past and Expected Financial Performance

WFC’s total assets have grown  at a 1.2% CAGR over the past three years. Analysts expect WFC’s revenue to increase 0.1% for the quarter ending December 31, 2021. The company’s EPS is expected to grow 133.3% for the quarter ending September 30, 2021, and 956.1% in its fiscal year 2021. Furthermore , its EPS is expected to grow at a 114.3% rate  per annum over the next five years.

In comparison, JPM’s total assets grew at a 12.5% CAGR over the past three years. The company’s revenue is expected to decrease 2.4% for the quarter ending December 31, 2021. Its EPS is expected to decline 1.4% for the quarter ending September 30, 2021, but grow 57.4% in its fiscal year 2021. Also, JPM’s EPS is expected to grow at an 8.2%  rate  per annum over the next five years.

Profitability

JPM’s trailing-12-month revenue is 1.68 times what WFC generates. Also,  JPM is more profitable, with a 37.18% net income margin versus WFC’s 22.12%.

 JPM’s 17.36% and 1.39% respective ROE and ROA are higher than WFC’s 9.67% and 0.92%.

Valuation

In terms of forward non-GAAP PEG, WFC is currently trading at 2.93x, which is 157% higher than JPM’s 1.14x. However, JPM’s forward non-GAAP P/E ratio of 11.44x is higher than WFC’s 10.85x.

POWR Ratings

WFC has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In comparison, JPM has an overall C rating, 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, which is consistent with analysts’ expectations that its EPS and revenue will increase in the coming months. JPM has a D grade for Growth, which is in sync with analysts’ expectations that its EPS and revenue will decline in the near term.

Of the 12 stocks in the Money Center Banks industry, WFC is ranked #1, while JPM is ranked #8.

Beyond what we’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 financial transactions, the banking industry is expected to continue witnessing rising revenues. While both WFC and JPM are expected to gain in the long run, we think it is better to bet on WFC now because of its better financials and significantly higher growth estimates.

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 rose $0.16 (+0.36%) in premarket trading Tuesday. Year-to-date, WFC has gained 48.21%, versus a 21.96% 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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