Key Stats for Wells Fargo & Co
With the Trump Boost, the financial sector is king of the world again and approaching 20% of the overall stock market value. Worried?
| Ticker | WFC |
|---|---|
| Sector | Other Banks |
| Latest price | $58.12 |
| Value | $291,896M |
| Daily vol | $972M |
| Date | 17 February 2017 |
Useful Links
- Latest news from Google Finance and Yahoo Finance
- Latest results from SEC Edgar
- Website: http://ift.tt/nqliwM
Description
Wells Fargo & Company is a financial services company, which offers banking, insurance, trust and investments, mortgage banking, investment banking, retail banking, brokerage, and consumer and commercial finance. It has three operating segments:
- Its Community Banking segment offers financial products and services for consumers and small businesses, including checking and savings accounts, credit and debit cards, and auto, student and small business lending. *Its Wholesale Banking segment provides financial solutions to businesses across the United States and globally.
- Its Wealth and Investment Management segment provides a range of personalized wealth management, investment, and retirement products and services to clients across the United States-based businesses.
Oh, and you may have forgotten that it got itself into a but of trouble with the regulators and changed in CEO in Oct. Lossing it's mantle as a scandal free beacon on Wall Street.
Recent financials
Looking at the topline, sales haven't really gone anywhere in years, though in the current interest rate environment, that's hardly a shock.
Earnings have recovered nicely, though that's a bad debts have returned to a more manageable level. And the dividend has bounced back nicely too!
| Metric | 2015A | 2014A | 2013A | 2012A | 2011A |
|---|---|---|---|---|---|
| Revenue | $86bn | $84bn | $84bn | $86bn | $81bn |
| EPS | $4.12 | $4.10 | $3.89 | $2.82 | $2.21 |
| DPS | $1.48 | $1.35 | $1.15 | $0.88 | $0.48 |
But if we start looking at some of the ratios, tracking performance, it's not so pretty. Yes, returns on assets and equity have recovered, but they seem to have plateaued.
| Metric | 2015A | 2014A | 2013A | 2012A | 2011A |
|---|---|---|---|---|---|
| Return on assets | 1.31% | 1.45% | 1.51% | 1.41% | 1.25% |
| Return on equity | 12.6% | 13.4% | 13.9% | 13.0% | 11.9% |
And if we look at the first 9 months of 2016... revenues up 3%, EPS down 3%, RoA down 11%, RoE down 9%. And the preliminary full year figures didn't excite either.
Competition / Regulation
There's a usual list of suspect when it comes to competition, and it's fair to say there are small regional banks that compete with them too. But I suspect the bigger issue / catalyst is regulation:
Since the enactment of the Dodd-Frank Act in 2010, the U.S. financial services industry has been subject to a significant increase in regulation and regulatory oversight initiatives. This increased regulation and oversight has substantially changed how most U.S. financial services companies conduct business and has increased their regulatory compliance costs.
And it's not just about Dodd-Frank (which Mr Trump POTUS hates) but there is Basel III forcing banks to have better capital buffers too.
That aside, the RoE of Wells Fargo is nice nice compared with the rest of the US industry. In fact firms like GS and MS have had terrible metrics (though you'd not know it looking at their stock prices)!
| Companies | Latest Sales | Return on Equity |
|---|---|---|
| Wells Fargo & Co | $53,663M | 12% |
| Bank of America Corp | $51,057M | 7% |
| Citigroup Inc | $57,615M | 7% |
| Goldman Sachs Group Inc | $37,825M | N/A |
| JPMorgan Chase & Co. | $55,901M | 10% |
| Morgan Stanley | $37,949M | N/A |
| U.S. Bancorp | $13,167M | 14% |
| Royal Bank of Canada | C$24,452M | 17% |
| Toronto-Dominion Bank | C$26,560M | 13% |
Cash / Debt?
"Debt?" isn't really the right question for banks... but what are the leverage ratios. Regulators expect them to have a 9.125% total capital ratio. i.e. to have no more loans out to clients that 11x the equity and permanent funding they've on their books.
At Sept 2016 the equity/capital buffer was comfortably higher at 15.4% i.e. WFC is lending just 6.5 times it's capital base.
Nice... especially since they have better returns than their peers too.
Wall Street says...
The professionals on Wall Street have a $57.98 for Wells Fargo & Co and their recommendation to clients is Hold. Unsurprise, since that's were the stock is today.
Valuation
Looking at the PE ratio, at 14x it's at the top of the mega-bank pack. Though frankly, there's not a lot of a spread.
| View Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield |
|---|---|---|---|---|
| WFC | $291,896M | 14x | 7% | 3% |
| BAC | $247,094M | 14x | 9% | 2% |
| C | $172,067M | 12x | 7% | 1% |
| GS | $99,190M | 13x | 13% | 1% |
| JPM | $323,940M | 14x | 6% | 2% |
| MS | $86,356M | 13x | 12% | 2% |
| USB | $93,499M | 16x | 5% | 2% |
| RY.TO | C$147,344M | 14x | 5% | 3% |
| TD.TO | C$128,711M | 13x | 8% | 3% |
Imagine, WFC has traded between 11 and 14x earnings the last 2 years. The highest anyone's got is 16x. So it feels like we are near the top on the valuation side.
Dividends
Wells Fargo & Co is forecast to pay a dividend of $1.57 per share which compares to a forecast EPS of $4.19.
Catalysts
In the last 3 months the stock price has moved by 10% that compares with a change in the earnings forecasts of 4%. That 4% boost is mainly as we've moved from 2016 forecasts to 2017.
It's pretty remarkable to see the stock doing so well, with 2016 actually a down year and 2017 forecast to be a 3% EPS boost. In fact, it's not until 2018 that there's any forecast material Trumpian benefit, with a 10% EPS boost forecast.
On the management team's latest call with Wall Street brokers the only think that stood out to me were talks of continued branch closures, headwinds, and expense ratios coming in at the high end.
But the market's not cared. Tally ho Mr T.
So, am I worried for Wells. Not really, but I ain't buying today. It feels like the whole banking industry, is being given the benefit of the doubt. And if there's one think we should have learnt by now, is not to trust these folks!
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Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted February 17, 2017 at 05:09PM by shane_stockflare http://ift.tt/2lWtCOY
