A month has gone by since the last earnings report for Wells Fargo (WFC). Shares have added about 3.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Wells Fargo due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Wells Fargo reported its fourth-quarter 2024 adjusted earnings per share of $1.42, which surpassed the Zacks Consensus Estimate of $1.34. In the prior-year quarter, the company reported earnings per share of $1.29.
Results have benefited from higher non-interest income. An improvement in capital ratios, a decline in provisions and non-interest expenses were other positives. However, the decrease in net interest income (NII) was the undermining factor.
Results exclude net losses of 25 cents per share on debt securities related to a repositioning of the investment securities portfolio and severance expenses, and net earnings of 26 cents per share of discrete tax benefits related to the resolution of prior period matters. After considering it, net income (GAAP basis) was $5.08 billion, which increased 47% from the prior-year quarter.
In 2024, earnings of $5.37 per share surpassed the consensus estimate of $5.29 and rose from $4.83 in 2023. Net income was $19.72 billion, up 3% from the prior-year quarter.
Quarterly total revenues were $20.38 billion, missing the Zacks Consensus Estimate of $20.55 billion. Also, the top line decreased 0.5% from the year-ago quarter.
For 2024, total revenues were $82.29 billion, which missed the Zacks Consensus Estimate of $82.62 billion. Also, the top line declined 0.4% year over year.
Wells Fargo’s NII was $11.83 billion, down 7% year over year. The metric was affected by deposit mix and pricing changes, the impacts of lower rates on floating rate assets, and lower loan balances, partially offset by lower market funding.
The net interest margin (on a taxable-equivalent basis) declined year over year to 2.70% from 2.92%.
Non-interest income grew 11% year over year to $8.54 billion. The uptick was driven by improved results from the company’s venture capital investments, an increase in asset-based fees in Wealth and Investment Management on higher market valuations, and higher investment banking fees, as well as increases in most other fee categories, partially offset by net losses on debt securities related to a repositioning of the investment portfolio and lower net gains from trading in the Markets business.
Non-interest expenses of $13.9 billion declined 12% year over year. This was mainly due to lower Federal Deposit Insurance Corporation assessments and severance expenses, and the impacts of efficiency initiatives. These decreases were partially offset by higher revenue-related compensation expenses, predominantly in Wealth and Investment Management, an increase in benefits expenses, and higher technology and equipment expenses.
Wells Fargo's efficiency ratio of 68% was lower than 77% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
As of Dec. 31, 2024, total loans of $912.7 billion increased 0.3% on a sequential basis. Total deposits were $1.37 trillion, which increased 1.6% on a sequential basis.
The provision for credit losses was $1.09 billion, down 15% from the prior-year quarter.
Net loan charge-offs were $1.21 billion or 0.53% of average loans in the reported quarter, down 3.3% year over year. Further, non-performing assets fell 6% year over year to $7.94 billion.
As of Dec. 31, 2024, the Tier 1 common equity ratio was 11.1% under the Standardized Approach, down from 11.4% in the fourth quarter of 2023.
Return on assets was 1.05%, up from the prior-year quarter’s 0.72%. Return on equity of 11.7% increased from 7.6% a year ago.
In the reported quarter, WFC repurchased 57.8 million shares, or $4 billion, of common stock.
Wells Fargo expects 2025 NII to be 1-3% higher than that reported in 2024.
Non-interest expenses for 2025 are expected to be $54.2 billion, with significant investments in technology, risk control infrastructure and other strategic areas.
The company aims to achieve a return on tangible common equity of 15% in 2025, suggesting a rise from the 13.4% recorded in 2024 through efficiency initiatives, revenue growth and disciplined expense management.
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Wells Fargo has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Wells Fargo has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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