Wells Fargo
While shares initially dipped, they ended up rallying nearly 10% higher from their lows in the ensuing trading sessions. Overall, Wells Fargo has outperformed the market and the bank index with a 64% YTD gain.
Inside the Numbers
In Q3, Wells Fargo posted $1.22 in earnings per share, beating expectations of $0.99 per share and a 59% increase from last year. The increase in profit was aided by a release of credit loss reserves as the economy has performed much better than feared at the depths of the coronavirus. Since then, much has changed including banks given approval to issue dividends and increase share buybacks.
Revenue came in at $18.83 billion topping estimates of $18.35 billion. The removal of loan-loss reserves added $1.4 billion to profits. The company will continue to release reserves in the coming quarters based on these trends.
One downbeat note was its net interest income decreasing by 5% due to soft demand, higher prepayments, and lower yields. The company also had to pay $250 million based on previous practices related to its loan modification program. It also had to pay a $72.6 million fine due to accusations of defrauding commercial customers and overcharging on foreign exchange transactions.
Stock Price Outlook
On the bright side, we have positive trends in EPS, low valuation, and the company returning cash to shareholders. The company bought $5.3 billion of stock in the quarter which equates to a rate of nearly 10% of the company's stock in a year. It also doubled the dividend to $0.20 per share.
Of course, Wells Fargo is tainted by its scandals and continues to pay fines related to its conduct. However, there are real signs of improvement and over time, the company's multiple could normalize if it can remain well behaved.
