New Target Price for Wells Fargo as CEO Cheers Double-Digit Revenue Growth

On Wednesday morning, several of the large money-center banks reported their fourth quarter financial results, effectively kicking off earnings season. 

Along with JP Morgan JPM and Citigroup C, Sarge fave Wells Fargo WFC put their numbers to the tape. Across the group, and individually for "Wells," both the quarter and the guidance were solid. Those waiting on Bank of America BAC will have to wait another day.

For the three-month period ended December 31, Wells Fargo posted a GAAP EPS of $1.42 on revenue of $20.378 billion. That bottom-line print beat Wall Street fairly decisively as the top-line number landed just short of being in line with consensus view. Across the firm, average loans contracted 3.4% to $906.4 billion, as average deposits expanded 1% to $1.354 trillion. The firm's Common Equity Tier 1 (CET1), a measure of capital relative to risk-weighted assets, ratio fell from 11.4 to a still-very-adequate 11.1.

Looking deeper into the numbers, the banks return on equity (ROE) improved to 11.7% from 7.6% for the year-ago period, while the return on tangible common equity (ROTCE) improved from 9% to 13.9% for the same comparison. The efficiency ratio for Wells Fargo for the fourth quarter was 68 down from 77 a year ago — while not quite where one might like to see the bank's efficiency ratio (in the 50s), this is a huge year-over-year improvement.

Across the firm, net charge-offs dropped from $1.258 billion to $1.188 billion, leading to provisions for credit losses that dropped from $1.282 billion a year ago to $1.095 billion. For the period, net interest margin dropped from 2.92% to 2.7%, as net interest income decreased 7% to $11.836 billion.

Segment Performance

• Consumer Banking & Lending: Generated total revenue of $8.98 billion (-10%) after auto lending dropped 21% offset by small gains in home lending and credit cards. Net income landed at $1.602 billion (-20%) as non-interest expense contracted 2% and provisions for credit losses increased 15%.
• Commercial Banking: Generated total revenue of $3.171 billion (-6%) after middle market banking dropped 2% asset-based lending contracted by 12%. Net income landed at $1.203 billion (-5%) as non-interest expense contracted 6% and provisions for credit losses contracted 18%.
• Corporate and Investment Banking: Generated total revenue of $4.613 (-3%) after banking dropped 4% and markets contracted by 5%. Net income landed at $1.58 billion (down small) as non-interest expense increased 8% and provisions for credit losses contracted 59%.
• Wealth & Investment Management: Generated total revenue of $3.958 billion (+8%) after non-interest income increased by 13%, offset slightly by a 6% contraction in net interest income. Net income landed at $508 million (+3%) as non-interest expense increased 9% and provisions for credit losses decreased by 42%.

The CEO

CEO Charlie Scharf commented in the press release on progress made toward having the Federal Reserve rescind the asset cap that was put in place back in 2018 in response to the scandals that had taken place at the bank under different management. Scharf took over the bank in September of 2019.

Scharf said, “I’m proud of the clear progress we've made on our risk and control agenda. The OCC terminated a consent order it issued in 2016 regarding sales practices, an important milestone for Wells Fargo. Our operational risk and compliance infrastructure is greatly changed from when I arrived and while we are not done, I'm confident that we will successfully complete the work required in our consent orders and embed an operational risk and compliance mindset into our culture.”

On diversifying the bank's revenue streams, Scharf added, “I’m excited about the opportunities ahead as we've seen improved results and increased market share in many of the businesses that we believe will drive higher growth and returns over time. For example, our credit card business continues to generate strong growth while maintaining a strong credit profile. After several years of minimal growth, we grew net checking accounts more meaningfully in 2024. We also grew mobile active customers by 1.5 million in 2024. For our affluent clients, we are starting to see some early benefits from the enhancements we have been making to our Wells Fargo Premier offerings, including higher deposit and investment balances. Fees and market share from investment banking and trading activities have been growing and our revenues in both trading and investment banking grew by double-digits in 2024, reflecting the investments we have been making in talent and technology."

Guidance

Markets were cheered as Wells Fargo provided some forward-looking guidance not in the press release, but in the materials that will accompany the earnings call. The bank sees full-year net interest income between 1% and 3% higher than it was in 2024. Wells Fargo also sees 2025 non-interest expense to be approximately $54.2 billion. Additionally, the firm announced that it sees a believable path towards a sustainable ROTCE of 15%. For the full year of 2024, ROTCE was 13.4%.

The Chart

I haven't shown you WFC in a while. Readers will see the double-bottom reversal from last summer that might look familiar. More recently, readers will now see a pennant pattern that has set up this morning's breakout.

Relative strength has remained neutral or better and is gaining renewed strength on today's action. The daily MACD doesn't really tell us much, but the histogram of the nine-day EMA is clearly in better shape than it was for most of December. The pivot for today's move as set up by that now bullish pennant is the 50-day SMA. That sets up our next target price.

Wells Fargo (WFC)

Target Price: $86

Pivot: 50-day SMA (currently $71.90)

Add: Down to 50-day SMA

Panic: On loss of the lower trendline of the pennant formation.

At the time of publication, Guilfoyle was long WFC equity.