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Wells Fargo (WFC) to Post Q1 Earnings: What's in Store?
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Wells Fargo & Company (WFC - Free Report) is scheduled to report first-quarter 2017 results on Apr 13.
The San Francisco-based banking giant has been much in the news following the sales scam that came into light in Sep 2016. The bank has been subjected to severe political and public outrage, and faced several lawsuits and investigations as well.
Hence, Wells Fargo undertook a number of steps to restore its reputation, post scandal. It initiated an internal probe and hired a consultant to review its sales practices. Moreover, management proposed to eliminate sales goals for its retail banking business earlier than planned.
Therefore, prior to earnings release, the Board of Directors of Wells Fargo released results of the internal investigation which revealed main causes of the retail fraud. Particularly, top management had failed to tackle the core issues and significant corporate issues due to the company’s aggressive sales model.
Following the probe’s conclusion, as part of the compensation, Wells Fargo announced clawing back about $69 million from former Chairman and CEO John Stumpf, and $67 million from Carrie Tolstedt, former head of Community Banking.
Amid such adversities, shares of Wells Fargo gained just 14.2% over the past one year, significantly lagging growth of 38.4% recorded by the Zacks categorized Banks – Major Regional industry.
Will the upcoming earnings release exert more pressure on the stock? Notably, Wells Fargo delivered an earnings beat in three of the trailing four quarters, with an average positive earnings surprise of 1.01%. However, our quantitative model doesn’t call for an earnings beat this time around. Also, the Zacks Consensus Estimate of 97 cents for the first quarter indicates a year-over-year decline of more than 2%.
A stock needs to have the right combination of the two key criteria – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) – for increasing the odds of an earnings beat.
Unfortunately, this is not the case here, as elaborated below.
Zacks ESP: The Earnings ESP for Wells Fargo is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 97 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Wells Fargo’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.
Factors to Influence Q1 Results
Mortgage Business to Slowdown: Wells Fargo – one of the largest mortgage lenders in the nation – might record decline in its mortgage banking revenues. Origination volume in first-quarter 2017 is expected to be roughly in line with the volume recorded in first-quarter 2016. However, the figure is likely to reduce sequentially due to seasonality in the purchases market and lower refinance volume driven by higher interest rates. Notably, referrals accounted for about 9% of mortgage originations in 2016 and management predicts that lower referrals from fourth-quarter 2016 will reduce funding volumes in first-quarter 2017 by approximately 2.5%.
Pressure on Net Interest Margin (NIM) Might Ease: Though the prolonged low-rate environment has taken a toll on the bank’s margins over the past several quarters, the Fed’s recent rate hike for the third time, since the financial crisis, and its commitment to raise rates faster (two more times) this year, based on a convincing pace of economic growth, should help banks get rid of shrinking margins.
Expenses May Trend Higher: After the finalization of the FDIC rule, the company estimates surcharge, along with the previously approved base rate reduction, to drive the total FDIC assessment by about $100 million per quarter, which started in third-quarter 2016. In addition, the bank may record escalated costs given its franchise investments in areas, including mobile banking technology, digital lending, brokerage offerings and regulation and compliance. Notably, seasonally higher personal expenses are expected in the quarter to be reported, reflecting incentive compensation and employee benefits expense.
Wells Fargo anticipates the efficiency ratio to remain near the high end of its targeted 55–59% range, but the company is targeting around $2 billion of cost savings by year-end 2018.
Retail Banking: Amid troubled times for Wells Fargo, following the bank’s $190-million settlement in Sep 2016 to resolve regulators’ claims of illegally opening millions of unauthorized accounts, the U.S. lender recorded disappointing retail banking customer activity through the quarter. Therefore, this might impact the bank’s operational results.
Muted Loan Growth: Despite easing lending standards a number of times last year, overall loan growth has been sluggish for the last few months. According to the Federal Reserve’s latest data, since Nov 2016, commercial banks witnessed the weakest loan growth in five years. While growth in consumer loans remained strong, commercial and industrial credit growth shrank significantly. Further, the auto portfolio runoff is likely to continue in the near term on tightening of underwriting standards by Wells Fargo. As expanding loans was one of the major ways to offset margin pressure for major banks, including Wells Fargo in the last few quarters, first-quarter 2017 results might display considerable revenue pressure.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as according to our model they have the right combination of elements to post an earnings beat this quarter.
The earnings ESP for SunTrust Banks, Inc. (STI - Free Report) is +2.41% and it carries a Zacks Rank #2. The company is scheduled to release first-quarter results on Apr 21.
The PNC Financial Services Group, Inc. (PNC - Free Report) has an earnings ESP of +0.55% and a Zacks Rank #2. It is slated to report first-quarter results on Apr 13.
Want to learn more about major banks earnings? Check out our recent video article for additional information: The Hottest Big Bank Earnings Charts
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>
Unique Zacks Analysis of Your Chosen Ticker
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Wells Fargo (WFC) to Post Q1 Earnings: What's in Store?
Wells Fargo & Company (WFC - Free Report) is scheduled to report first-quarter 2017 results on Apr 13.
The San Francisco-based banking giant has been much in the news following the sales scam that came into light in Sep 2016. The bank has been subjected to severe political and public outrage, and faced several lawsuits and investigations as well.
Hence, Wells Fargo undertook a number of steps to restore its reputation, post scandal. It initiated an internal probe and hired a consultant to review its sales practices. Moreover, management proposed to eliminate sales goals for its retail banking business earlier than planned.
Therefore, prior to earnings release, the Board of Directors of Wells Fargo released results of the internal investigation which revealed main causes of the retail fraud. Particularly, top management had failed to tackle the core issues and significant corporate issues due to the company’s aggressive sales model.
Following the probe’s conclusion, as part of the compensation, Wells Fargo announced clawing back about $69 million from former Chairman and CEO John Stumpf, and $67 million from Carrie Tolstedt, former head of Community Banking.
Amid such adversities, shares of Wells Fargo gained just 14.2% over the past one year, significantly lagging growth of 38.4% recorded by the Zacks categorized Banks – Major Regional industry.
Will the upcoming earnings release exert more pressure on the stock? Notably, Wells Fargo delivered an earnings beat in three of the trailing four quarters, with an average positive earnings surprise of 1.01%. However, our quantitative model doesn’t call for an earnings beat this time around. Also, the Zacks Consensus Estimate of 97 cents for the first quarter indicates a year-over-year decline of more than 2%.
Wells Fargo & Company Price and EPS Surprise
Wells Fargo & Company Price and EPS Surprise | Wells Fargo & Company Quote
A stock needs to have the right combination of the two key criteria – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) – for increasing the odds of an earnings beat.
Unfortunately, this is not the case here, as elaborated below.
Zacks ESP: The Earnings ESP for Wells Fargo is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 97 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Wells Fargo’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.
Factors to Influence Q1 Results
Mortgage Business to Slowdown: Wells Fargo – one of the largest mortgage lenders in the nation – might record decline in its mortgage banking revenues. Origination volume in first-quarter 2017 is expected to be roughly in line with the volume recorded in first-quarter 2016. However, the figure is likely to reduce sequentially due to seasonality in the purchases market and lower refinance volume driven by higher interest rates. Notably, referrals accounted for about 9% of mortgage originations in 2016 and management predicts that lower referrals from fourth-quarter 2016 will reduce funding volumes in first-quarter 2017 by approximately 2.5%.
Pressure on Net Interest Margin (NIM) Might Ease: Though the prolonged low-rate environment has taken a toll on the bank’s margins over the past several quarters, the Fed’s recent rate hike for the third time, since the financial crisis, and its commitment to raise rates faster (two more times) this year, based on a convincing pace of economic growth, should help banks get rid of shrinking margins.
Expenses May Trend Higher: After the finalization of the FDIC rule, the company estimates surcharge, along with the previously approved base rate reduction, to drive the total FDIC assessment by about $100 million per quarter, which started in third-quarter 2016. In addition, the bank may record escalated costs given its franchise investments in areas, including mobile banking technology, digital lending, brokerage offerings and regulation and compliance. Notably, seasonally higher personal expenses are expected in the quarter to be reported, reflecting incentive compensation and employee benefits expense.
Wells Fargo anticipates the efficiency ratio to remain near the high end of its targeted 55–59% range, but the company is targeting around $2 billion of cost savings by year-end 2018.
Retail Banking: Amid troubled times for Wells Fargo, following the bank’s $190-million settlement in Sep 2016 to resolve regulators’ claims of illegally opening millions of unauthorized accounts, the U.S. lender recorded disappointing retail banking customer activity through the quarter. Therefore, this might impact the bank’s operational results.
Muted Loan Growth: Despite easing lending standards a number of times last year, overall loan growth has been sluggish for the last few months. According to the Federal Reserve’s latest data, since Nov 2016, commercial banks witnessed the weakest loan growth in five years. While growth in consumer loans remained strong, commercial and industrial credit growth shrank significantly. Further, the auto portfolio runoff is likely to continue in the near term on tightening of underwriting standards by Wells Fargo. As expanding loans was one of the major ways to offset margin pressure for major banks, including Wells Fargo in the last few quarters, first-quarter 2017 results might display considerable revenue pressure.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as according to our model they have the right combination of elements to post an earnings beat this quarter.
BB&T Corporation has an earnings ESP of +5.71% and a Zacks Rank #3. It is scheduled to report first-quarter 2017 results on Apr 20. You can see the complete list of today’s Zacks #1 Rank stocks here.
The earnings ESP for SunTrust Banks, Inc. (STI - Free Report) is +2.41% and it carries a Zacks Rank #2. The company is scheduled to release first-quarter results on Apr 21.
The PNC Financial Services Group, Inc. (PNC - Free Report) has an earnings ESP of +0.55% and a Zacks Rank #2. It is slated to report first-quarter results on Apr 13.
Want to learn more about major banks earnings? Check out our recent video article for additional information: The Hottest Big Bank Earnings Charts
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>