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Can Wells Fargo (WFC) Retain Its Beat Streak in Q4 Earnings?
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Wells Fargo & Company (WFC - Free Report) is scheduled to report fourth-quarter and 2023 results on Jan 12, before the opening bell. The company’s quarterly revenues and earnings are expected to have improved year over year.
In the last reported quarter, WFC’s earnings beat the Zacks Consensus Estimate on higher net interest income (NII) and non-interest income. Improvements in its capital ratios and a decline in expenses were other positives. However, the worsening credit quality and a dip in loan balances were the undermining factors.
Over the trailing four quarters, Wells Fargo’s earnings surpassed the consensus estimate on all four occasions, the average surprise being 8.3%.
Let’s take a look at factors that are expected to have influenced Wells Fargo’s fourth-quarter earnings.
Loans and NII: Banks’ lending activities have been subdued in the fourth quarter due to low corporate confidence, an uncertain macroeconomic outlook and high interest rates. While demand for commercial real estate loans improved slightly in November from the third-quarter 2023 end, per the Fed’s latest data, consumer lending showed no signs of advancement. Moreover, the demand for commercial and industrial loans weakened in the first two months of the quarter under review from third-quarter 2023.
Also, while the Federal Reserve paused interest rate hikes in fourth-quarter 2023, interest rates remained at a 22-year high of 5.25-5.5%.
An overall slowdown in loan demand and high interest rates are expected to have affected WFC’s lending activity in the quarter under review.
As for deposits, banks are likely to have enjoyed a stronger seasonal uptick in deposits. This, along with slower outflow of money to high-yielding alternatives and limited deposit pricing pressure, is expected to have reduced funding pressure for banks. This is expected to have aided NII for fourth-quarter 2023.
Amid these considerations, the Zacks Consensus Estimate for WFC’s NII is pegged at $12.73 billion, indicating a 2.8% decline from the prior-quarter’s reported figure.
Nonetheless, for 2023, management expects NII to increase 16%.
Non-Interest Revenues: The company is likely to have seen lower deposit-related fees. The consensus mark for the same is pegged at $1.17 billion, implying a marginal decrease sequentially.
In the fourth quarter, mortgage rates declined, with the rate on a 30-year fixed mortgage falling to 6.61% in December from 7.31% in September end. Nonetheless, due to home price appreciation, origination volumes (both purchase and refinancing) remained lower than the prior quarter.
Hence, being one of the preeminent bank mortgage lenders in the United States, WFC is likely to have continued seeing declines in its home lending portfolio and mortgage banking income in fourth-quarter 2023. The Zacks Consensus Estimate for WFC’s fourth-quarter 2023 mortgage banking revenues is pegged at $187 million, implying a 3.1% fall on a sequential basis.
Wells Fargo’s investment advisory and other asset-based fee revenues are likely to have borne the brunt of weak fixed-income market performance. A dip in market valuations and lower transactional activities are expected to have been headwinds. The consensus mark for investment advisory and other asset-based fee revenues is pegged at $2.18 billion, implying a sequentially rise of 1.7%.
In the quarter under review, the investment banking (IB) business showed a turnaround from the discouraging performance in the prior three quarters. Green shoots were observed in the capital markets and issuance activities. The major factor driving a better picture was the stabilizing interest rate environment.
This is expected to have affected WFC’s IB fees. Nonetheless, the Zacks Consensus Estimate for the same is pegged at $487 million, suggesting a 1% decline from the prior quarter’s reported number.
The Zacks Consensus Estimate for Wells Fargo’s total non-interest income is pegged at $7.50 billion, suggesting a 3.2% decline from the prior quarter’s reported number.
Expenses: Wells Fargo’s costs are expected to have continued to flare up in the fourth quarter, given its franchise investments in technology and digitalization efforts. Additionally, severance expenses related to job cuts are anticipated to have led to elevated non-interest expenses. This is likely to have hindered bottom-line growth in the quarter under review.
The company is expected to have kept aside $750 million to less than $1 billion for severance expenses in the fourth quarter of 2023.
Also, non-interest expenses for 2023, excluding operating losses, are anticipated to be $51.5 billion.
Asset Quality: With expectations of an uncertain macroeconomic outlook, Wells Fargo’s credit quality is likely to have deteriorated. Moreover, given the heightened market volatility, commercial loan defaults are expected to have risen. Hence, as WFC has substantial exposure to commercial loans, it is likely to have set aside reserves in the fourth quarter.
The consensus mark for total non-accrual loans is pegged at $8.51 billion, implying a sequential rise of 6.4%.
What Our Model Predicts
According to our quantitative model, the chances of WFC beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Wells Fargo is -17.01%.
Zacks Rank: WFC currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for fourth-quarter earnings has been revised 6.4% downward in the past month to $1.16 per share. Also, it suggests a year-over-year rise of 73%.
The consensus estimate for quarterly revenues of $20.29 billion indicates a 3.2% increase from the prior-year quarter’s reported number.
Stocks That Warrant a Look
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Citizens Financial Group, Inc. (CFG - Free Report) is +0.59% and it carries a Zacks Rank #3 at present. The company is slated to report fourth-quarter and 2023 results on Jan 17.
Over the past month, CFG’s Zacks Consensus Estimate for quarterly earnings has moved 17.7% north.
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Can Wells Fargo (WFC) Retain Its Beat Streak in Q4 Earnings?
Wells Fargo & Company (WFC - Free Report) is scheduled to report fourth-quarter and 2023 results on Jan 12, before the opening bell. The company’s quarterly revenues and earnings are expected to have improved year over year.
In the last reported quarter, WFC’s earnings beat the Zacks Consensus Estimate on higher net interest income (NII) and non-interest income. Improvements in its capital ratios and a decline in expenses were other positives. However, the worsening credit quality and a dip in loan balances were the undermining factors.
Over the trailing four quarters, Wells Fargo’s earnings surpassed the consensus estimate on all four occasions, the average surprise being 8.3%.
Wells Fargo & Company Price and EPS Surprise
Wells Fargo & Company price-eps-surprise | Wells Fargo & Company Quote
Let’s take a look at factors that are expected to have influenced Wells Fargo’s fourth-quarter earnings.
Loans and NII: Banks’ lending activities have been subdued in the fourth quarter due to low corporate confidence, an uncertain macroeconomic outlook and high interest rates. While demand for commercial real estate loans improved slightly in November from the third-quarter 2023 end, per the Fed’s latest data, consumer lending showed no signs of advancement. Moreover, the demand for commercial and industrial loans weakened in the first two months of the quarter under review from third-quarter 2023.
Also, while the Federal Reserve paused interest rate hikes in fourth-quarter 2023, interest rates remained at a 22-year high of 5.25-5.5%.
An overall slowdown in loan demand and high interest rates are expected to have affected WFC’s lending activity in the quarter under review.
As for deposits, banks are likely to have enjoyed a stronger seasonal uptick in deposits. This, along with slower outflow of money to high-yielding alternatives and limited deposit pricing pressure, is expected to have reduced funding pressure for banks. This is expected to have aided NII for fourth-quarter 2023.
Amid these considerations, the Zacks Consensus Estimate for WFC’s NII is pegged at $12.73 billion, indicating a 2.8% decline from the prior-quarter’s reported figure.
Nonetheless, for 2023, management expects NII to increase 16%.
Non-Interest Revenues: The company is likely to have seen lower deposit-related fees. The consensus mark for the same is pegged at $1.17 billion, implying a marginal decrease sequentially.
In the fourth quarter, mortgage rates declined, with the rate on a 30-year fixed mortgage falling to 6.61% in December from 7.31% in September end. Nonetheless, due to home price appreciation, origination volumes (both purchase and refinancing) remained lower than the prior quarter.
Hence, being one of the preeminent bank mortgage lenders in the United States, WFC is likely to have continued seeing declines in its home lending portfolio and mortgage banking income in fourth-quarter 2023. The Zacks Consensus Estimate for WFC’s fourth-quarter 2023 mortgage banking revenues is pegged at $187 million, implying a 3.1% fall on a sequential basis.
Wells Fargo’s investment advisory and other asset-based fee revenues are likely to have borne the brunt of weak fixed-income market performance. A dip in market valuations and lower transactional activities are expected to have been headwinds. The consensus mark for investment advisory and other asset-based fee revenues is pegged at $2.18 billion, implying a sequentially rise of 1.7%.
In the quarter under review, the investment banking (IB) business showed a turnaround from the discouraging performance in the prior three quarters. Green shoots were observed in the capital markets and issuance activities. The major factor driving a better picture was the stabilizing interest rate environment.
This is expected to have affected WFC’s IB fees. Nonetheless, the Zacks Consensus Estimate for the same is pegged at $487 million, suggesting a 1% decline from the prior quarter’s reported number.
The Zacks Consensus Estimate for Wells Fargo’s total non-interest income is pegged at $7.50 billion, suggesting a 3.2% decline from the prior quarter’s reported number.
Expenses: Wells Fargo’s costs are expected to have continued to flare up in the fourth quarter, given its franchise investments in technology and digitalization efforts. Additionally, severance expenses related to job cuts are anticipated to have led to elevated non-interest expenses. This is likely to have hindered bottom-line growth in the quarter under review.
The company is expected to have kept aside $750 million to less than $1 billion for severance expenses in the fourth quarter of 2023.
Also, non-interest expenses for 2023, excluding operating losses, are anticipated to be $51.5 billion.
Asset Quality: With expectations of an uncertain macroeconomic outlook, Wells Fargo’s credit quality is likely to have deteriorated. Moreover, given the heightened market volatility, commercial loan defaults are expected to have risen. Hence, as WFC has substantial exposure to commercial loans, it is likely to have set aside reserves in the fourth quarter.
The consensus mark for total non-accrual loans is pegged at $8.51 billion, implying a sequential rise of 6.4%.
What Our Model Predicts
According to our quantitative model, the chances of WFC beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Wells Fargo is -17.01%.
Zacks Rank: WFC currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for fourth-quarter earnings has been revised 6.4% downward in the past month to $1.16 per share. Also, it suggests a year-over-year rise of 73%.
The consensus estimate for quarterly revenues of $20.29 billion indicates a 3.2% increase from the prior-year quarter’s reported number.
Stocks That Warrant a Look
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Citizens Financial Group, Inc. (CFG - Free Report) is +0.59% and it carries a Zacks Rank #3 at present. The company is slated to report fourth-quarter and 2023 results on Jan 17.
Over the past month, CFG’s Zacks Consensus Estimate for quarterly earnings has moved 17.7% north.
First Horizon Corporation (FHN - Free Report) is scheduled to release fourth-quarter and 2023 earnings on Jan 18. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +9.68%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FHN’s quarterly earnings estimates have been unchanged over the past 60 days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.