Wells Fargo Earnings: Net Interest Income Guidance Disappoints, but Expenses Remain Under Control

Key Morningstar Metrics for Wells Fargo

• Fair Value Estimate: $55.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Wells Fargo’s Earnings

Wells Fargo WFC reported fourth-quarter earnings per share of $0.86, in line with the FactSet consensus estimate. Excluding the one-time severance charges of $969 million and FDIC special assessment of $1.9 billion for uninsured deposits of certain failed institutions during the banking turmoil of early 2023, the core operating results came in at $1.29 per share. After adjusting for the FDIC charge, the quarter saw a return on tangible equity of 13%, which was still below management’s medium target of 15%.

There were some slight negative surprises for Wells in its outlook for the next year. Its guidance for full-year net interest income was lower than our expectations, as management believes the bank has not yet seen a trough of NII margin. However, the firm’s full-year expense guidance for 2024 was in line with our expectations. We might make slight changes to our near-term forecasts, but we do not plan to materially change our $55 fair value estimate as we fully incorporate fourth-quarter results.

The stock rallied by around 20% from its October-end lows as the market got excited about the prospect of the Federal Reserve cutting interest rates in 2024. Wells Fargo was one of our top U.S. bank picks for much of 2023, given its relatively attractive valuation, but this recent rally has reduced its margin of safety. We currently see its shares as slightly undervalued, trading below the average discount for our money center bank coverage. Continuing to meet expense goals and putting regulatory issues in the rearview will be key catalysts going forward. While predicting the precise timeline for the lifting of the asset cap is difficult, we like the progress the bank has made here in recent years.