North America

Earnings Preview: Wells Fargo & Company Q2 2017 (WFC)

By: Craig Bowles

Overview

Wells Fargo & Company (WFC) is scheduled to report 2Q 2017 earnings before the opening bell on Friday, July 14th. The results are expected to come through at approximately 8:00 a.m. ET with a conference call webcast at Wells Fargo Investor Relations to follow at 10:00 a.m. Wells Fargo reports at a similar time as Citigroup (C) and after the JP Morgan Chase (JPM) release earlier the same morning. The large banks have the potential to impact the broader market indices, including the S&P Index Futures and corresponding ETFs.

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): The value for this measure typically compares with consensus estimates. The analyst consensus estimate is $1.01 (range $0.95 to $1.07). (Source: Yahoo! Finance) Consensus was $1.05 three months ago.
  • Revenues: Analyst consensus expectations are for a 1.3% y/y increase to $22.46 bln (range $21.98 bln to $22.76 bln).
  • Wells Fargo Price/Earnings of 13.9 compares to the 5-year average 12.1; Price/Book of 1.6 compares to the 5-year average 1.5; Price/Revenue of 3.2 compares to the 5-year average 2.8. Dividend Yield of 2.7% compares to a 5-year average of 2.5%.
  • Analysts view Wells Fargo with 15 (14 last qtr) Buy, 12 Hold, and 5 Sell ratings (source: MarketBeat.com).
  • Wells Fargo insiders sold 2,547,770 shares over the last three months and 9,417,032 shares in the past year. (source: NASDAQ.com) In June 2017, Wells Fargo approved an $11.5 bln share buyback, up from $8.3 bln the previous twelve months.
  • Wells Fargo shares have a 1-day average price change on earnings of 1.53%. Options are pricing in an implied move of 2.19% off earnings.

Recent News

  • 07/09: A California judge has granted a preliminary approval for Wells Fargo & Co’s agreement to pay $142 million to customers whose credit scores were harmed by its employees creating fake accounts in their names, according to a post on Reuters.com.
  • 06/28: Following positive results from the annual stress tests, the Fed approved capital return plans of all 34 banks. WFC raised its quarterly dividend by 1c to 39c and increased buybacks, according to a post on CNBC.com.
  • 06/19: Despite a flattening yield curve, big banks can benefit from higher payouts, relatively low valuations, and better earnings driven by higher rates. KBW warns the “bear flattener” of the yield curve pressures income, according to a post on Barron’s.com.
  • 06/17: Large lenders are poised to increase dividends by double digits, according to a post on Barron’s.com.
  • 06/13: Bank of America, JPMorgan Chase, Wells Fargo, Citi, and others launched Zelle, a money-transfer service that is built into your mobile banking app and allows you to send money to friends, even if they use a different bank, according to a post on Barron’s.com.
  • 06/06: Morgan Stanley sees financial regulatory reform progress picking up this summer, according to a post on Barron’s.com.
  • 05/30: Wells Fargo is among the firms looking to get out front in fintech by nurturing the firms developing it, according to a post on Barron’s.com.

Technical Review

Wells Fargo stock reached an all-time high of $59.57 in early March but has underperformed other major banks the past two years after outperforming the four years before that. There’s quite a bit of consolidation between $45 and 55, so above $50 should keep the bulls in control. (Chart courtesy of StockCharts.com)

Summary

Wells Fargo continues settle fraud problems and the latest $142 million for fake accounts appears to be only a token penalty by the courts. Traders got their increased stock buyback. The company has beaten earnings consensus by an average of 2c the last four quarters.  Estimize consensus for an EPS of $1.04 on revenue of $22.437 bln compares to analyst consensus of $1.01 on revenue of $22.46 bln.

 

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