On Friday, CFRA made an adjustment to the financial outlook for Wells Fargo (NYSE: WFC), reducing the price target to $68 from the previous $70 while still holding a Buy rating on the bank's shares. The firm's analyst cited a lowered earnings per share (EPS) forecast for 2024 and 2025 as a key reason for the adjustment.
The new 12-month price target of $68 is derived from a multiple of 12.2 times the firm's 2025 EPS estimate, which is notably below the 10-year historical average of 15.3 times. This reduction reflects tempered expectations for net interest income. The EPS forecast for 2024 has been revised down by $0.14 to $4.97, and the 2025 estimate has decreased by $0.26 to $5.56.
Wells Fargo reported its second-quarter earnings per share at $1.33, which was an improvement from $1.25 the previous year and $0.05 above the consensus. Total revenue reported was $20.7 billion. However, the bank experienced a significant 9% decline in net interest income due to the current high-rate environment causing unexpected rises in deposit pricing.
As a result of these conditions, Wells Fargo has revised its full-year 2024 net interest income guidance, now anticipating a decrease of 8%-9%, compared to the previously stated 7%-9%. Despite this, the analyst expressed a belief that the bank's net interest income could be nearing its lowest point, expecting a reversal in deposit pricing pressures once interest rates decrease.
Credit quality also showed signs of weakening, with net charge-offs increasing year-over-year by 25 basis points to 0.57%. On a more positive note, the bank's investment banking fees were highlighted as a strong point, reaching $1.3 billion in the first half of 2024, which outperformed peer figures and exceeded the peak levels of 2021.
In other recent news, Wells Fargo & Co reported a slight dip in its second-quarter profit, with a net income of $4.91 billion, down from the $4.94 billion reported in the same period last year. The decrease was attributed to higher expenses related to retaining deposits due to intensified competition for customers' money and sustained high interest rates. The bank's net interest income fell by 9% to $11.92 billion for the quarter, reflecting the challenges in the current financial climate.
In addition, Wells Fargo recently appointed Alexandra Barth as the new co-head of its leveraged finance business. This move is part of the bank's broader strategy to enhance its corporate and investment banking unit. Barth, who co-led the leveraged finance division at Deutsche Bank for nearly a quarter-century, brings significant expertise to the role.
In other recent developments, Wells Fargo is expected to maintain ample capital reserves as the Federal Reserve prepares to release its annual stress test results. Industry analysts predict that all 32 banks undergoing the tests, including Wells Fargo, will demonstrate capital levels above regulatory minimums.
Furthermore, the bank was involved in a complex financial trade executed by Bayview Asset Management. The cash raised from the insurance sales in this trade is initially held at Wells Fargo. These recent developments provide a glimpse into the bank's operations and strategies in the current economic environment.
InvestingPro Insights
Wells Fargo (NYSE: WFC) has been a topic of robust discussion among analysts, and recent data from InvestingPro underscores some key aspects that investors should consider. With a market capitalization of $196.7 billion and a P/E ratio well below the industry average at 10.18 for the last twelve months as of Q1 2024, the bank stands out for its value proposition. Additionally, an attractive PEG ratio of 0.35 suggests that Wells Fargo's earnings growth has not been fully reflected in its current stock price.
InvestingPro Tips indicate that management's confidence is evident through aggressive share buybacks, and with eight analysts revising their earnings upwards for the upcoming period, the sentiment around the bank's performance is positive. Moreover, Wells Fargo's commitment to shareholder returns is highlighted by its 54-year streak of maintained dividend payments, with a recent dividend yield of 2.33% and a dividend growth of 16.67% over the last twelve months as of Q1 2024.
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