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Wells Fargo (WFC) Aided by Cost Control Amid Lower Revenues
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Wells Fargo & Company (WFC - Free Report) is well-poised to capitalize on its cost-controlling initiatives, rise in deposit balance and strong capital position, which are likely to keep aiding its financials in the quarters ahead. However, declining revenues, lower loan balances and concerns about mortgage banking income make us apprehensive.
Through measures like streamlining organizational structure, closing branches and reducing headcount undertaken from the third quarter of 2020, WFC has managed its expenses prudently, aiding its financials. Notably, for the three years ended 2022, its expenses witnessed a negative compound annual growth rate (CAGR) of 0.5%. The declining trend continued in the first half of 2023. WFC expects to carry on with these initiatives this year, which will likely keep supporting its bottom-line growth.
Speaking of WFC's deposits, the same witnessed a CAGR of 1.5% for the three years ended 2022. Although the metric declined in the first half of 2023 and is expected to continue moderating in the near term, the considerable strength in the consumer business and commercial banking segments will likely support the deposit balance in the upcoming period.
The company maintains a strong liquidity position. As of the second-quarter 2023 end, its liquidity coverage ratio was 123%, which is above its regulatory minimum of 100%. Its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $155.33 billion as of Jun 30, 2023.
Even though Wells Fargo has a total debt (comprising of long-term and short-term borrowings) of $254.86 billion (as of Jun 30, 2023), given its solid liquidity position, the company is well-positioned to meet its debt obligations, even if the economic situation worsens.
In addition, Wells Fargo's meaningful capital deployment efforts through regular dividend payments and share repurchases bode well for enhancing its shareholder wealth.
Analysts seem optimistic regarding WFC’s earnings growth prospects. The Zacks Consensus Estimate for the company's 2023 earnings has been revised 2.7% upward over the past 60 days. It currently carries a Zacks Rank #3 (Hold).
Over the past three months, shares of WFC have gained 3.1% compared with the industry's upside of 4.3%.
Image Source: Zacks Investment Research
However, the company's revenue growth has been distressed for quite some time now and it witnessed a negative CAGR of 3.9% over the last four years (2018-2022). Though revenues increased in the first half of 2023 on elevated trading activity, the same may not be the case in the upcoming quarters. Also, higher funding costs are expected to impede net interest income (NII) and revenue growth in the near term.
WFC has witnessed a decline in loans over the past several years on planned run-off from non-strategic/liquidating portfolios. We expect its loan balance to remain disappointing with the asset cap remaining in place until it complies fully with regulators’ demands regarding compliance and operational risk management. This is likely to hurt NII growth.
Rising mortgage rates and a decline in originations are expected to reduce Wells Fargo’s mortgage banking income, which consists of activities such as residential and commercial mortgage originations, sales and servicing. The metric saw a three-year (ended 2022) negative CAGR of 20.1%, with the year-over-year decline continuing in the first half of 2023.
Bank Stocks Worth a Look
A couple of better-ranked stocks from the finance space are JPMorgan Chase & Co. (JPM - Free Report) and The Bancorp (TBBK - Free Report) .
JPMorgan Chase currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised marginally upward over the past 30 days. In the past six months, JPM’s shares have rallied 9.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for The Bancorp’s current-year earnings has been revised 1.4% upward over the past 30 days. Its shares have gained 11.9% in the past three months. Currently, TBBK carries a Zacks Rank #2 (Buy).
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Wells Fargo (WFC) Aided by Cost Control Amid Lower Revenues
Wells Fargo & Company (WFC - Free Report) is well-poised to capitalize on its cost-controlling initiatives, rise in deposit balance and strong capital position, which are likely to keep aiding its financials in the quarters ahead. However, declining revenues, lower loan balances and concerns about mortgage banking income make us apprehensive.
Through measures like streamlining organizational structure, closing branches and reducing headcount undertaken from the third quarter of 2020, WFC has managed its expenses prudently, aiding its financials. Notably, for the three years ended 2022, its expenses witnessed a negative compound annual growth rate (CAGR) of 0.5%. The declining trend continued in the first half of 2023. WFC expects to carry on with these initiatives this year, which will likely keep supporting its bottom-line growth.
Speaking of WFC's deposits, the same witnessed a CAGR of 1.5% for the three years ended 2022. Although the metric declined in the first half of 2023 and is expected to continue moderating in the near term, the considerable strength in the consumer business and commercial banking segments will likely support the deposit balance in the upcoming period.
The company maintains a strong liquidity position. As of the second-quarter 2023 end, its liquidity coverage ratio was 123%, which is above its regulatory minimum of 100%. Its liquid assets (including cash and due from banks, as well as interest-earning deposits with banks) totaled $155.33 billion as of Jun 30, 2023.
Even though Wells Fargo has a total debt (comprising of long-term and short-term borrowings) of $254.86 billion (as of Jun 30, 2023), given its solid liquidity position, the company is well-positioned to meet its debt obligations, even if the economic situation worsens.
In addition, Wells Fargo's meaningful capital deployment efforts through regular dividend payments and share repurchases bode well for enhancing its shareholder wealth.
Analysts seem optimistic regarding WFC’s earnings growth prospects. The Zacks Consensus Estimate for the company's 2023 earnings has been revised 2.7% upward over the past 60 days. It currently carries a Zacks Rank #3 (Hold).
Over the past three months, shares of WFC have gained 3.1% compared with the industry's upside of 4.3%.
Image Source: Zacks Investment Research
However, the company's revenue growth has been distressed for quite some time now and it witnessed a negative CAGR of 3.9% over the last four years (2018-2022). Though revenues increased in the first half of 2023 on elevated trading activity, the same may not be the case in the upcoming quarters. Also, higher funding costs are expected to impede net interest income (NII) and revenue growth in the near term.
WFC has witnessed a decline in loans over the past several years on planned run-off from non-strategic/liquidating portfolios. We expect its loan balance to remain disappointing with the asset cap remaining in place until it complies fully with regulators’ demands regarding compliance and operational risk management. This is likely to hurt NII growth.
Rising mortgage rates and a decline in originations are expected to reduce Wells Fargo’s mortgage banking income, which consists of activities such as residential and commercial mortgage originations, sales and servicing. The metric saw a three-year (ended 2022) negative CAGR of 20.1%, with the year-over-year decline continuing in the first half of 2023.
Bank Stocks Worth a Look
A couple of better-ranked stocks from the finance space are JPMorgan Chase & Co. (JPM - Free Report) and The Bancorp (TBBK - Free Report) .
JPMorgan Chase currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised marginally upward over the past 30 days. In the past six months, JPM’s shares have rallied 9.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for The Bancorp’s current-year earnings has been revised 1.4% upward over the past 30 days. Its shares have gained 11.9% in the past three months. Currently, TBBK carries a Zacks Rank #2 (Buy).