Wells Fargo’s stock has outperformed the S&P 500 so far this year, gaining 18% compared to the index’s 10% rise. However, the stock has seen a volatile performance over the past three years, with returns of 59% in 2021, -14% in 2022, and 19% in 2023. This volatility has led to underperformance compared to the S&P 500 in 2023. In a challenging macroeconomic environment with high oil prices and elevated interest rates, the question arises whether Wells Fargo will continue to underperform or see a strong jump in the next 12 months.
In the fourth quarter of 2023, Wells Fargo surpassed street estimates with total revenues increasing by 2% year-over-year to $20.5 billion. This growth was mainly driven by a 17% increase in noninterest revenues, offset by a 5% drop in net interest income. Despite an increase in provisions for credit losses, the bank’s adjusted net income improved by 10% year-over-year to $3.16 billion. For the full year 2023, the bank’s top line grew by 17% to $52.4 billion, with consumer banking revenues increasing by 6%, commercial banking by 23%, and corporate & investment banking by 26%.
Looking ahead, Wells Fargo’s net interest income is expected to see negative growth in the upcoming quarters, with revenues forecasted to stay around $80.3 billion in fiscal year 2024. The adjusted net income margin is expected to see a slight dip, resulting in an adjusted net income of $16.9 billion and an annual EPS of $4.73. With a P/E multiple of just below 12x, the stock is expected to be valued at $56.
Despite the recent performance, Wells Fargo’s stock is trading at $58 per share, 3% above Trefis’ estimated fair value of $56. In comparison to other stocks in the financial sector and even large cap companies like Google, Tesla, and Microsoft, Wells Fargo has struggled to consistently outperform the S&P 500 in recent years. In contrast, Trefis’ High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the benchmark index. This suggests that group investment may offer better returns with less risk in the current uncertain economic environment.
In conclusion, while Wells Fargo has shown strong gains in its stock price this year, its past volatility and underperformance in 2023 raise questions about its future performance. With expectations of negative growth in net interest income and a slight decrease in adjusted net income in the coming year, the stock’s valuation is projected to be at $56. Investors may look to Trefis’ Market Beating Portfolios for potential investment opportunities in the current market landscape.
