Wells Fargo & Company (WFC) is currently trading at $53.10 per share, with a market capitalization of $265.27 billion. The bank recently paid a dividend of $1.52, with a yield of 2.85%. Projecting ahead, the 1-year target estimate price of the stock is $57.59 per share. Thomson Reuters analysts are less bullish on the stock since April, with 13 analysts giving it a hold rating, up from 12 a month ago. Nonetheless, on a rating scale of 1.0 (strong buy) to 5.0 (sell), WFC stock is currently at 2.6. In 2016, the bank’s revenues were reported at $94.18 billion, and earnings came in at $21.94 billion. This is on par with 2015 revenues of $90.03 billion and earnings of $22.89 billion.
WFC remains bullish despite loss of confidence
As one of the biggest banks in the world, Wells Fargo & Company is a heavy hitter on Wall Street. Recently, Moody’s Corporation affirmed its rating on WFC with an A2 long-term rating, an Aa2 senior debt rating and an Aa3 subordinated debt rating. A big part of the reason why Wells Fargo & Company received such a resounding vote of confidence from Moody’s is the bank’s diversification. Not only is WFC a giant in commercial banking, but it dominates the retail banking scene in the US. The bank has a robust history of generating internal capital and is highly liquid.
The scandal that broke about 2 million accounts being tampered with had resulted in a loss of confidence in the bank. Various legal ramifications have ensued, and clients have lost faith in the bank’s security mechanisms. Additionally, the chief executive officer of WFC at the time, John Stump was fired. Fortunately, WFC has taken all requisite steps to repair the damage to its reputation, and restore credibility to its brand. Naturally, profits will be reduced owing to the costs of litigation and settlements that will come from the lawsuits filed against the bank.
Earnings beat has WFC traders more relaxed
Other ratings agencies including Zacks have issued a hold rating on WFC, given that it has underperformed for the year to date. At the start of 2017, Wells Fargo & Company was trading at $56 per share, and that has gradually been whittled away to $53.03 per share by May 25, 2017. A big slump took place on March 16 when the stock was trading at $59.32 per share and went into freefall hitting a low of $51.35 per share on April 13, 2017. A leading analyst from Saxon Trade believes that there is still upside potential with US banks provided that the Fed rate hike kicks in in June, possibly followed up by another one in September. With an increasing federal funds rate, it is possible that bank profitability will rapidly rise and this will drive up interest-related earnings.
There has since been a period of consolidation for the stock, owing to better than expected Q1 2017 performance. Recall that Wells Fargo generated actual earnings of $1 per share, while estimates of $0.97 were forecast. Nonetheless, there are strong growth prospects with FDIC-insured retail and commercial banks. For Q1 2017, there was a 12.7% increase (year on year) of $44 billion. Banks with assets greater than $10 billion were the largest drivers of increased revenues. However, these only comprise 1.8% of all US banks. Most of the profits came from big US banks including C, BAC, WFC and USB. Nonetheless, there are concerns that can equities market bubble may be brewing, and many investors – Warren Buffett among them – believe that a correction is on the cards. As such, folks are turning to Gold IRA trading options as a hedge against market volatility, and to rebalance their financial portfolios.
