Wells Fargo extended its recent winning streak to six straight sessions on Friday despite missing expectations on third-quarter revenue. Investors instead focused on running the bank leaner and achieving better-than-expected profitability. Total revenue for the three months ended Sept. 30 fell 2.4% from a year ago, to $20.37 billion, falling short of analysts' expectations of $20.42 billion, according to LSEG. Wells Fargo reported the results before the opening bell on Friday. Earnings of $1.52 per share were higher than Wall Street estimates of $1.28 per share, LSEG data showed. Adjusted earnings per share excluded a loss of 10 cents per share due to “losses on debt securities related to the reorganization of the investment securities portfolio.” However, even before the adjustment, reported earnings per share of $1.42 still looked good versus expectations. As for the direction, it was a bit mixed. However, the most important factor is that management believes that net interest income (NII) pressure resulting from interest rate dynamics has bottomed out and expects it to rebound in 2025. WFC Year-to-date Wells Fargo shares are up 6% on issue to over $61. That's just below the 52-week high of $62.55 in May, which was also the highest since January 2018. Bottom line: We're raising our price target on the stock to $66 per share from $62 and reiterating the equivalent of a Buy 1 rating. There are three reasons: We like the efficiency gains at the bank; the progress made to lift the Federal Reserve's asset cap; An optimistic view of the economy and inflation. Comment: Wells Fargo's quarterly revenue was disappointing as net interest income declined due to the lack of bank net interest margin (NIM) as loans and deposits were slightly lower than expected. This is the bad. But goodness makes up for those mistakes. Non-interest, or fee-based income, which has been a key focus for the Street, rose nearly 12% year over year and beat expectations. Fee-based income growth is a key factor in our investment thesis because it is more predictable and allows the bank to be less at the mercy of interest rate dynamics that it cannot control. Wells Fargo Why we own it: We bought Wells Fargo as a turnaround story under the leadership of CEO Charlie Scharf. He has been making progress in cleaning up the bank's operation and reforming its previously bloated cost structure after a series of misdeeds before his tenure. Scharf is also working to lift the Fed's $1.95 trillion asset cap and boost Wells Fargo's fee-generating revenue streams. Competitors: Bank of America, Citigroup Weight in club portfolio: 4.76% Last purchase: August 7, 2024 Start: January 8, 2021 CEO Charles Scharf began his prepared remarks on the conference call by saying: “Our earnings profile is very different than it was five years ago , as we made strategic investments in many of our businesses and defocused or sold others, our revenue sources became more diversified, and our fee-based revenues grew 16% during the first nine months this year, largely offsetting the net interest income headwinds that We encountered it over the past year. Wells Fargo's overall efficiency ratio was also below expectations and this is positive because it is calculated by dividing total non-interest expenses by net revenues – so, the lower the ratio, the more efficient the bank operates at the same time. The company's Tier 1 common equity (CET) ratio — which compares a bank's capital against its risk-weighted assets — was above expectations, suggesting Wells Fargo still has plenty of excess capital to reinvest in the business while continuing to return cash to shareholders. . During the third quarter, management returned $3.5 billion to shareholders through buybacks and another $1.4 billion through dividends. Tangible book value per share (TBVPS) came in well above expectations, increasing nearly 12% year-over-year, as did return on tangible common equity (ROTCE), a key measure investors rely on to determine an appropriate valuation multiple for their situation. Financial institution. higher level, indicating the resilience of the broader U.S. economy. “Customers in our consumer business continue to hold up relatively well, benefiting from a strong labor market and wage growth,” Scharf said during the call. “…We continue to look for changes in consumer health, but we have not seen Meaningful Changes in Trends When looking at delinquency statistics across our consumer credit portfolios, spending on credit and debit cards was up in the third quarter compared to last year, and although the pace of growth has slowed, it is still healthy… The benefits Inflation slowing and interest rates starting to fall should be beneficial to all clients, especially those living at the lower end of the income scale. “Looking ahead, overall, the US economy remains strong with slowing inflation and a resilient labor market, which is strengthening,” Scharf added. Income supports consumer spending. Corporate balance sheets are strong, which contributes to consumption and investment in the economy but slows demand for tradable goods.” Lending We continue to prepare for a variety of economic environments, and we will balance our desire to increase returns and growth while protecting the downside. Bank earnings are important Especially for investors to focus on because of all the money and business that flows through these large institutions, management teams, like Wells Fargo's, are in a unique position to have a say not only about the path ahead for their business, but also about the broader economy we're coming out of The call and we feel good not only about preparing Wells Fargo for next year as Scharf continues to clean up Wells Fargo after the misdeeds that preceded his tenure, we could see the bank's $1.95 trillion asset cap being lifted in 2025. This should allow the bank. Growing its balance sheet and returning more capital to shareholders ahead of the asset cap decision, Scharf has been ramping up Wells Fargo's corporate and investment banking (CIB) division He has made a series of high-profile hires in recent years. The return of dealmaking on Wall Street — whether M&A or IPOs — will benefit Wells Fargo. Our other financial name, Morgan Stanley, which will announce its earnings next Wednesday, is expected to gain more from deal making because a larger percentage of its revenues are tied to investment banking. Guidance Wells Fargo's management team has updated its forecast for the remainder of the year, and now expects National Insurance to decline about 9% versus the $52.4 billion result we saw in 2023. This puts us at the upper end of the 8% to 9% decline range. . Previously presented. A 9% decline would mean roughly $47.66 billion in National Insurance, less than the $48.99 billion expected, according to FactSet. The update isn't entirely surprising given what we've seen with pricing this year. More importantly is the team's comment that they still expect to see NII decline this year before rebounding in 2025. NII in the current (4th) quarter is expected to be in line with the Q3 result, which is what one would expect to see right before the bounce. (Jim Cramer's Charitable Trust Long Term WFC. See here for full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. No specific results or profits are guaranteed.
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We're raising our price target for Wells Fargo after the stock rose on earnings
