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Category: Stock Market and Wells Fargo
Date: 15 January 2020 Stock Price: $49.30 We take a look at the 4th quarter earnings report of their 2019 fiscal year of Wells Fargo, diversified financial services company with over $1.9 trillion in assets and serving one out of every three households in the United States. The stock of Wells Fargo declined sharply after the release of their 4th quarter 2019 earnings report.
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About Wells Faro
Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Wells Fargo’s vision is to satisfy our customers’ financial needs and help them succeed financially. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, investment and mortgage products and services, as well as consumer and commercial finance, through 7,400 locations, more than 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 32 countries and territories to support customers who conduct business in the global economy. With approximately 260,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortune’s 2019 rankings of America’s largest corporations.
Overview of Wells Fargo's 4th quarter 2019 earnings report
Data below refers to quarterly data unless specified otherwise:
- Total interest income: $15.595 billion (down from $16.921 billion for the same period of the previous year)
- Total interest income decreased by 8% over the last 12 months
- Total noninterest income : $8.660 billion (up from $8.336 billion for the same period of the previous year)
- Total noninterest income increased by 4% over the last 12 months
- Total noninterest expenses: $15.614 billion (up from $13.339 billion for the same period of the previous year)
- Total noninterest expenses increased by 17% over the last 12 months
- So concerning for Wells Fargo is the fact that total interest income decreased strongly, and noninterest income increased slightly while noninterest expenses saw a significant increase over the last 12 months. And this is not good for margins as it will be squeezed as income grows at a rate slower than expenses which negatively affects the group's profitability.
- Net income: 2.546 billion (down from $5.711 billion for the same period of the previous year)
- Diluted earnings per share: $0.60 (down 50% from $1.21 for the same period of the previous year)
- PE ratio of Wells Fargo: 12.2
- Dividend yield of Wells Fargo: 4.1%
- Diluted weighted-average shares outstanding: 4.234 billion (down from 4.7 billion for the same period of the previous year)
- Book value per share: $40.31 (up 5.9% from $38.06 for the same period of the previous year)
- Cash and cash equivalents: $21.757 billion
- Cash and cash equivalents per share: $5.13
- Cash and cash equivalents makes up 10.4% of Wells Fargo's market capital
- Cash and cash equivalents makes up 1.12% of Wells Fargo's total assets
- Loans net of allowances for losses: $952.714 billion
- Loans net of allowances makes up 49.4% of Wells Fargo's total assets
- Goodwill: $26.390 billion
- Goodwill makes up 1.36% of Wells Fargo's total assets
- Goodwill per stock: $6.23
- Stockholders equity in Wells Fargo: $187.984 billion
- Stockholders equity per share: $44.39
- So Wells Fargo is trading a 1.11 times its stockholders equity which is well outside the expected range of between 2 and 4 which most firms tend to trade at.
Wells Fargo's management commentary on their 4th quarter 2019 earnings report
SAN FRANCISCO – January 14, 2020 – Wells Fargo & Company (NYSE:WFC) reported net income of $2.9 billion, or $0.60 per diluted common share, for fourth quarter 2019, compared with $6.1 billion, or $1.21 per share, for fourth quarter 2018, and $4.6 billion, or $0.92 per share, for third quarter 2019. Chief Executive Officer and President Charlie Scharf said, “Wells Fargo is a wonderful and important franchise that has made some serious mistakes, and my mandate is to make the fundamental changes necessary to regain the full trust and respect of all stakeholders.”
“During my first three months at Wells Fargo my primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve, while beginning to develop a path to improve our financial results. This work is necessary to build the appropriate foundation for us to move forward. Wells Fargo plays an important role for our country, and we know that ultimately our actions and results will dictate when that trust is fully regained. And while the work is substantial, I am confident that with the appropriate prioritization of resources, processes, and management attention, we can accomplish what is expected of us," Mr. Scharf added.
"In addition, even in my short time at the company, it is clear that our opportunities to improve our performance are substantial when we finish this work. Our cost structure is too high, and I believe there are many areas where we will be able to increase our rate of growth. While it is too early to put time frames around these goals, we will be diligent in pursuing them and I am confident the opportunities are meaningful,” Mr. Scharf concluded.
“During my first three months at Wells Fargo my primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve, while beginning to develop a path to improve our financial results. This work is necessary to build the appropriate foundation for us to move forward. Wells Fargo plays an important role for our country, and we know that ultimately our actions and results will dictate when that trust is fully regained. And while the work is substantial, I am confident that with the appropriate prioritization of resources, processes, and management attention, we can accomplish what is expected of us," Mr. Scharf added.
"In addition, even in my short time at the company, it is clear that our opportunities to improve our performance are substantial when we finish this work. Our cost structure is too high, and I believe there are many areas where we will be able to increase our rate of growth. While it is too early to put time frames around these goals, we will be diligent in pursuing them and I am confident the opportunities are meaningful,” Mr. Scharf concluded.
Chief Financial Officer John Shrewsberry said, “Wells Fargo reported $2.9 billion of net income in the fourth quarter and diluted earnings per share of $0.60, which included the impact of $1.5 billion, or $(0.33) per share, of litigation accruals for a variety of matters, including previously disclosed retail sales practices matters. Our net interest income declined in the fourth quarter driven predominantly by the impact of the lower interest rate environment. In addition, while we are spending what is necessary in order to improve risk management, our other expenses were too high and becoming more efficient remains a top priority. However, we continued to have positive business trends with both loans and deposits growing from the third quarter and a year ago. We also saw increases from the third quarter and a year ago in primary consumer checking customers, debit and credit card usage, Wealth and Investment Management total client assets, and Investment Banking market share. Our net charge-off rate remained near historic lows, and our capital levels were strong even as we returned $9 billion to shareholders through common stock dividends and net share repurchases in the fourth quarter, reducing common shares outstanding by 10% compared with a year ago.”
Wells Fargo (NYSE: WFC) stock price history
The image below, obtained from Google, shows the stock price history of Wells Fargo over the last 5 years. And it's not been a very good time for Wells Fargo stockholders. 5 years ago the stock was trading at around $51.64 a stock and its currently trading at $49.30 a stock. That's a loss of -73.9% suffered by Wells Fargo stockholders over the last 5 years.
The stock of Wells Fargo is trading at close to the midpoint between its 52 week low and 52 week high which to us is an indication that the momentum and sentiment of Wells Fargo stock is neutral at the moment.
The stock of Wells Fargo is trading at close to the midpoint between its 52 week low and 52 week high which to us is an indication that the momentum and sentiment of Wells Fargo stock is neutral at the moment.
Recent coverage of Wells Fargo
The extract below discusses the latest regarding Wells Fargo as obtained from Fool.com
What happened
Shares of Wells Fargo & Co. (NYSE:WFC) traded down nearly 5% on Tuesday after the banking giantreported fourth-quarter results that came in below expectations. The company has spent the last few years trying to dig out from a mess caused by a fake-accounts scandal and a number of other regulatory and legal issues, and its new CEO made it clear Tuesday that Wells Fargo still has significant work ahead of it.
So what
Before markets opened today, Wells Fargo reported fourth-quarter adjusted earnings of $0.93 per share on revenue of $19.86 billion, missing consensus estimates for $1.12 per share in earnings on revenue of $20.1 billion. In a statement, CEO Charlie Scharf, who took the top job at the bank in October, laid out his agenda for what he says needs to happen to transform the company.
Read the full article here
What happened
Shares of Wells Fargo & Co. (NYSE:WFC) traded down nearly 5% on Tuesday after the banking giantreported fourth-quarter results that came in below expectations. The company has spent the last few years trying to dig out from a mess caused by a fake-accounts scandal and a number of other regulatory and legal issues, and its new CEO made it clear Tuesday that Wells Fargo still has significant work ahead of it.
So what
Before markets opened today, Wells Fargo reported fourth-quarter adjusted earnings of $0.93 per share on revenue of $19.86 billion, missing consensus estimates for $1.12 per share in earnings on revenue of $20.1 billion. In a statement, CEO Charlie Scharf, who took the top job at the bank in October, laid out his agenda for what he says needs to happen to transform the company.
Read the full article here
Wells Fargo (NYSE: WFC) latest stock valuation
So what is Wells Fargo stock worth based on the release of their 4th quarter 2019 and full fiscal 2019 earnings earnings report? Based on Wells Fargo's latest earnings report our valuation models provide a target (full value) price for Wells Fargo stock at $55.10 a stock. We therefore believe that the stock of Wells Fargo is undervalued at its current price of $49.30
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $55.10 Therefore we believe a good entry point into Wells Fargo stock is at $49.60 or below. Since the stock of Wells Fargo is trading at just below our suggested entry point into the stock we rate the stock of Wells Fargo as a buy
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $55.10 Therefore we believe a good entry point into Wells Fargo stock is at $49.60 or below. Since the stock of Wells Fargo is trading at just below our suggested entry point into the stock we rate the stock of Wells Fargo as a buy
Next earnings release date for Wells Fargo
It is expected that Wells Fargo (NYSE: WFC) 1st quarter 2020 earnings report will be released in the middle of April 2020