Wells Fargo Earnings: Net Interest Income Guidance Unchanged and Trading Revenue Strong

Key Morningstar Metrics for Wells Fargo

• Fair Value Estimate: $58.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Wells Fargo’s Earnings

Wells Fargo WFC reported first-quarter earnings of $1.20 per share, ahead of the FactSet consensus estimate of $1.06. Trading revenue was quite strong at $1.4 billion, an all-time high for the bank. Excluding the one-time FDIC special assessment of $284 million for uninsured deposits of certain failed institutions during the banking turmoil of early 2023, the core operating results came in at $1.26 per share. The first-quarter numbers resulted in a return on tangible equity of 12.3%, below management’s medium target of 15%.

The company’s 2024 outlook was not changed from the last update, and we view the unchanged net interest income outlook as slightly disappointing. As Wells remains asset-sensitive, we hoped to see a better full-year 2024 NII outlook, as the market now expects only three Fed rate cuts, compared with the six anticipated at the beginning of 2024. The bank’s full-year 2024 NII guidance remains around 7%-9% lower than the full-year 2023 level of $52.4 billion. Management believes the bank will see a trough of NII toward the end of the year. In our opinion, the bank will likely not see material NII growth for a couple of years, even beyond 2024. We project that NII will grow materially after the current cycle of cutting interest rates fully plays out.

We like that the 2024 full-year expense guidance was unchanged at $52.6 billion. The bank’s shares have rallied by around 45% from their October 2023 lows, as the market got excited about the prospects of interest rate cuts and the general banking outlook improved. Wells Fargo was one of our top US bank picks for much of 2023, given its relatively attractive valuation, but it is now trading close to our fair value estimate. We might slightly change our near-term forecasts, but we do not plan to materially change our $58 fair value estimate for Wells as we fully incorporate the first-quarter results.