Leading financial services company Wells Fargo & Company (WFC) offers banking, investment, and commercial finance and mortgage services in the United States and overseas. The company operates in the consumer banking and lending, commercial banking, corporate and investment banking, and wealth and investment management segments.
A significant improvement in commercial mortgage-backed securities gains, in addition to improved trading and higher investment banking fees, have helped WFC deliver strong results in the first quarter of 2021. The stock has gained 66.1% over the past nine months and 38.3% year-to-date. However, its shares have retreated 10.9% over the past month.
Closing yesterday’s session at $41.75, WFC is trading 13.3% below its 52-week high of $48.13. With a strong U.S. economic recovery, both consumer and commercial loans are expected to witness a significant uptick in demand. This should help drive the company’s growth and improve its business operations and efficiency. Furthermore, accelerated we think consumer investment and spending should allow WFC to deliver impressive returns in the near term.
Here is what we think could shape WFC’s performance in the coming months:
Favorable Macroeconomic Outlook
Powered by consumers’ accelerated spending, in-part driven by government recovery spending, strong market trends and an uptick in economic activity, the financial sector has been witnessing solid growth this year. Loan growth had diminished amid the pandemic, but the demand for personal and commercial loans is expected to rise gradually this year buoyed by improvements in employment conditions and GDP. In fact, WFC’s average loans in its wealth and investment management segment rose 4% year-over-year to $80.8 billion in the last reported quarter.
Launch of New Card Portfolio
On June 8, WFC introduced a new consumer credit card portfolio that will include its new Visa cards suite—the Active Cash Card—with unlimited 2% cash rewards on purchases and advanced security features. This should allow WFC to offer a wide range of flexible cash redemption options to its customers.
Favorable Analyst Estimates
A $0.93 consensus EPS estimate for the current quarter, ending June 2021, indicates a 240.9% improvement year-over-year. Also, its EPS is expected to rise 829.3% in the current year, and at the rate of 112.9% per annum over the next five years.
Analysts expect WFC’s revenues to rise marginally year-over-year to $18.01 billion in the next quarter, ending September 2021.
Robust Financials
WFC’s total revenue increased 2% year-over-year to $18.06 billion in the first quarter, ended March 31, 2021. Its net income rose 58% sequentially to $4.74 billion, while EPS came in at $1.05 for this period, representing a 64% increase sequentially. The company’s $2.1 trillion in total client assets under its wealth and investment management segment represents a 28% year-over-year increase. Under its consumer banking and lending segment, home lending surged 19% year-over-year due to higher retail mortgage originations, while its auto lending was up 6% from the year-ago value on higher net interest income.
Consensus Rating and Price Target Reflect Potential Upside
Of the 21 Wall Street analysts that rated WFC, six rated it a Strong Buy, and eight rated it Buy. Also, analysts expect the stock to hit $49.14 soon, indicating a potential 17.7% upside.
POWR Ratings Reflect Promising Outlook
WFC has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. WFC has a Sentiment Grade of A, which is consistent with analysts’ expectations that its revenue and earnings will grow.
Also, in terms of Growth Grade, WFC has a B. The company’s strong financial performance is in sync with this grade.
Click here to see the additional POWR Ratings for WFC (Value, Stability, Quality, and Momentum).
The stock is ranked #2 of 11 stocks in the B-rated Money Center Banks industry.
If one is looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, one can access them here.
Bottom Line
WFC has generated a $208 million gain on student loans and a substantial uptick in client demand for its asset-backed finance products in the first quarter of 2021. In fact, as the U.S. economic recovery gains steam, the company should see significant improvement in all its business segments. With individuals and businesses looking to spend and invest now, we believe WFC is well positioned to capitalize on increased financial activities. So, it could be wise to bet on the stock now.
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WFC shares were trading at $42.52 per share on Monday morning, up $0.77 (+1.84%). Year-to-date, WFC has gained 41.64%, versus a 12.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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