Wells Fargo (NYSE:WFC) (NYSE:WFC) stock is down about 23% year-to-date compared to the S&P500 index’s 22% decline over the same period. The recent decline in stock markets was due to record inflation, higher than expected interest rate hikes by the Fed and geopolitical tensions.
At its current price of $39 per share, the stock is trading 34% below its fair value of $59 – Trefis’ estimate for Wells Fargo valuation. The bank posted mixed results in the first quarter of 2021, with profits beating street expectations but revenue missing the mark. It recorded total revenue of $17.6 billion, down 5% year-on-year, mainly due to a 4% drop in corporate and investment banking and a significant drop in revenue of the business division. Negative growth in corporate and investment banking revenue was driven by lower investment banking revenue and trading-related revenue. Additionally, Enterprise Division revenue fell from $1 billion to -$12 million as the first quarter of 2021 included a one-time benefit from Wells Fargo sales.
The bank’s revenue improved 6% year-on-year to $78.5 billion in 2021. It was driven by a 24% increase in non-interest income, partially offset by a 10% drop in net interest income. Non-interest income primarily benefited from higher transaction-related income, investment banking fees, card fees, mortgage banking income, brokerage services, investment advice, commissions and other fees. Additionally, provisions for credit losses decreased by $14.1 billion to -$4.2 billion, which boosted profitability numbers. In total, the bank reported adjusted net income of $20.3 billion, up 10x
The mortgage banking giant typically derives nearly 55% of its total revenue from net interest income, which has fallen to 46% in 2021 due to falling outstanding loan balances and interest rate headwinds. interest. However, the Federal Reserve initiated the rate hike process in fiscal year 2022. It has already raised benchmark interest rates three times for a total quantum of 1.5%. Additionally, we expect rates to rise further in the coming months. This move will likely help net interest income. In all, Wells Fargo revenue are expected to remain around $73.7 billion in fiscal 2022. Additionally, WFC’s adjusted net margin is expected to decline from 25.8% to approximately 20%, resulting in adjusted net income of $15 billion. This, coupled with an annual EPS of $4.05 and a P/E multiple just below 15x, will lead to a valuation of $59.
Here you’ll find our previous Wells Fargo stock coverage, where you can follow our view over time.
Stock prices have fallen precipitously across all sectors over the past few months and we are now in a bear market for the first time since March 2020, when the Covid-19 outbreak triggered a stock market crash. We capture key Dow Jones trends during and after major stock market crashes in our interactive dashboard analysis,’Comparison of stock market crashes.’
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