Wells Fargo & Company: Here's Why Investors Shouldn't Miss Out!

שלשום

Hello,

Wells Fargo & Company is a financial services company. It provides a diversified set of banking, investment and mortgage products and services, and consumer and commercial finance, through banking locations and offices, the Internet
wellsfargo.com) and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia and in countries outside the United States. Its segments include Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking, and Wealth and Investment Management. The Wealth and Investment Management segment provides personalized wealth management, brokerage, financial planning, lending, private banking, trust and fiduciary products and services to affluent, high-net worth and ultra-high-net worth clients. Commercial Banking products and services include banking and credit products across multiple industry sectors and municipalities, secured lending and lease products, and treasury management.

TECHNICAL ANALYSIS- Checklist
1.Structure drawing (Trend line drawing on past price chart data)- As shown below
2.Patterns identification (Naming patterns on past price chart data for future wave)- The price is currently correcting & filling the Nov 5th gap.
3.Future indication (Reading indicator for future wave)- 0 crossover on MACD.
4.Future wave (Drawing on future price chart using future indication from indicator)- As shown
5.Future reversal point (Identifying trend reversal point on price chart using structure)- Target price $90



FINANCIAL SUMMARY
BRIEF: From 2018 to 2023, total revenue increased overall from $96.25 billion to $116.22 billion, though it dipped in 2020 and 2022; net interest income fluctuated, starting at $49.99 billion in 2018, dropping to $35.78 billion in 2021, then recovering to $52.38 billion by 2023; meanwhile, net income was highly variable, peaking at $19.55 billion in 2019, significantly dropping to $3.38 billion in 2020, before soaring to $1.914 billion in 2023.



Risks to consider
•Revenue growth has become challenging at Wells Fargo. Though the Federal Reserve cut the interest rate by 50 basis points in September 2024, the bank’s Non-Interest Income may continue to face challenges in the near term as stabilizing funding costs might take time. The company is trying to increase fee-based income sources, but it will take some time to reflect in its financials. Hence, top-line growth is less likely to improve in the quarters ahead.

Q3 EARNINGS SUMMARY (Date of release 11.10.2024) (Next report date Jan 15,2025)
•Wells Fargo reported a net income of $5.1 billion down from 5.7 billion in the same Quarter last year 2023.
•Total revenue decreased to $20.37 billion, down from $20.86 billion in Q3 2023.
•Non-interest expenses were slightly reduced to $13.07 billion, compared to $13.11 billion a year earlier.
•The provision for credit losses was reported at $1.07 billion, down from $1.20 billion in Q3 2023.
•Average loans were $910.3 billion, a decrease from $943.2 billion.
•Average deposits increased slightly to $1,341.7 billion, compared to $1,340.3 billion.
•The bank repurchased 62 million shares, totaling $3.5 billion in Q3 2024.
•Return on Equity (ROE) was at 11.7%, down from 13.3% in the prior year.
•Return on Average Tangible Common Equity (ROTCE) decreased to 13.9%, from 15.9%.
•Consumer Banking and Lending revenues decreased by 5%, primarily due to lower deposit balances.
•Commercial Banking revenues showed a slight decline of 2%, while Corporate and Investment Banking revenues remained stable.
•CEO Charlie Scharf highlighted ongoing investments in diverse revenue sources, with fee-based revenue growing by 16% during the first nine months of the year, largely offsetting net interest income challenges.

Our recommendation
Wells Fargo reported third-quarter earnings of $5.1 billion, which included a one-time loss of $447 million ($0.10 per share) due to adjustments in their investment securities portfolio. Despite this setback, the bank's strategic realignment is expected to bolster future interest income. Over the past year, Wells Fargo's stock has corrected -12% since November 2024 giving us a great entry opportunity. Key to note is also that Wells Fargo’s Share Repurchase has been performing a share repurchase program. In the reported quarter 3 2024, Wells Fargo repurchased 62 million shares, or $3.5 billion, of common stock.

From a technical perspective, the recent correction in the Wells Fargo & Company stock provides a perfect entry point for this stock. The stock has approached its moving averages, which often signals potential support levels. Additionally, there's an anticipation of a zero crossover on the MACD (Moving Average Convergence Divergence), an indicator used to spot changes in a stock's momentum, suggesting a possible shift from bearish to bullish trends. This combination of technical signals indicates that the stock might be at an advantageous point for entry. Our target for this stock is at USD 90.14 with a buy at USD 71.31.

Looking ahead, external factors like the election of Donald Trump and Republican control of Congress present potential opportunities for the U.S. banking sector, evidenced by a post-election rally of over 10% for many bank stocks. While valuations in the sector range from fair to slightly overvalued, easing capital regulations—such as the revised Basel III proposal that lowers capital requirements for large banks—could spur balance sheet growth, profitability, and shareholder returns. The proposed law revisions to reduce capital requirements and a more conducive environment for mergers and acquisitions could enhance profitability and shareholder returns. Our recommendation is Buy on this stock.