Is Wells Fargo Stock a Smart Investment Option Post Q4 Earnings?

Wells Fargo & Company WFC stock jumped 9.4% since the release of its fourth-quarter 2024 results on Jan. 15, 2025. Strong quarterly results and an optimistic 2025 outlook drove the rise.One of the largest financial services companies in the United States, WFC’s fourth-quarter earnings surpassed the Zacks Consensus Estimate, while revenues missed. Results benefited from higher non-interest income and a decline in non-interest expenses. However, the decrease in net interest (NII) was an undermining factor.Over the past year, Wells Fargo shares soared 62.7% compared with the industry’s rise of 57.9%. WFC has performed better than its peers JPMorgan JPM and Bank of America BAC over the same time frame.Price Performance Image Source: Zacks Investment Research Given WFC’s impressive rally, investors might wonder if the opportunity to add this stock to their portfolio has passed. However, we believe that Wells Fargo has a lot going in its favor, and this rally is far from over. The stock holds substantial upside potential as we step into 2025.Technical indicators suggest continued strong performance for WFC. The stock trades above its 50-day moving average, signaling robust upward momentum and price stability.50-Day Moving Average Image Source: Zacks Investment Research Before we check the investment worthiness of Wells Fargo stock, let us take a look at the company’s fourth-quarter performance in brief.Quick Glance at WFC’s Q4 PerformanceNII: Wells Fargo’s fourth-quarter 2024 NII declined 7% year over year to $11.83 billion. The metric was affected by the deposit mix and pricing changes, the impacts of lower rates on floating rate assets, and lower loan balances, partially offset by lower market funding.Non-Interest Income: The metric 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.Non-Interest Expenses: In the fourth quarter, 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. Asset Quality: The company’s asset quality improved in the reported quarter. 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.Reasons Why We Remain Bullish on WFC StockProgresses to Fix Compliance Issues: Under the direction of CEO Charlie Scharf, Wells Fargo is strengthening its compliance framework following the fake account scandal. The bank's improved risk management techniques have received regulatory approval, with progress closely monitored by their operating committee.“Building the right risk and control infrastructure remains our top priority, and we will continue to invest in this important work,” Scharf stated during the fourth-quarter earnings call.In November 2024, Reuters reported WFC to be in the final stages of meeting its regulatory requirements to remove the $1.95-trillion asset cap. This asset cap was imposed in 2018 following the revelation of its fake account scandal. Per the report, the asset cap could be removed in the first half of 2025, provided the bank resolves its risk management and compliance issues. The decision to lift the restriction would require voting from the Federal Reserve's board of governors. Because of the asset cap, the company is unable to grow to its potential. This is affecting its loan growth. Given that loans are among the largest assets a bank can hold, lifting the asset cap will mark a turning point for Wells Fargo.WFC demonstrated that strengthening its risk management and compliance infrastructure continues to be the mainstay of its operational strategy, as seen by the resolution of six regulatory consent orders since 2019. This is crucial as the company pursues to strengthen its governance and ensure adherence to regulatory standards.Fed Rate Cuts: The Federal Reserve’s aggressive monetary policy easing is likely to support WFC’s NII over time. The Fed lowered the interest rates by 100 basis points in 2024 and indicated two rate cuts for this year.The rate cuts are positive developments for WFC, which is under increasing funding cost pressures. While high rates have led to a significant jump in NII, the same has raised funding and deposit costs, thus squeezing the company’s net interest margin (NIM).Wells Fargo's NII and NIM have been subdued by the increased funding costs as the high-interest rate environment weighed on it. In 2024, NII declined 8% year over year to $47.7 billion. NIM declined to 2.73% from 3.06% in 2023.Management expects 2025 NII to grow between 1% and 3%.NII Outlook Image Source: Wells Fargo & Company Diverse Revenue Streams: The company is diverging revenue sources and reducing its reliance on NII. During the fourth-quarter conference call, management noted that improving its credit card platform is an important strategic objective. The enhanced credit card platform with more competitive offerings will keep driving strong credit card spending and new account growth. Since 2021, WFC has rolled out 11 cards, including four consumer cards and a small business card in 2024. The new product offerings continue to be well received by both existing and new customers, with more than 2.4 million new credit card accounts opened in 2024. The momentum in this business is also demonstrated by strong credit card spend, which moved up more than $17 billion from a year ago. The company has been methodically strengthening its corporate investment bank (IB) as it sees significant growth opportunities. WFC significantly raised advisor retention in its wealth and investment management division and has put more of an emphasis on serving its consumer banking clients and independent advisers, both of which should eventually spur development. The company also continues to invest in talent and technology to strengthen its corporate IB business. In the commercial banking business, Wells Fargo is focused on adding relationship managers and business development officers in underpenetrated and growth markets to drive client acquisition and revenue growth. Additionally, WFC is working closely with its clients to support their merger and acquisition activities, driving higher advisory revenues. These efforts by the company position it well to generate higher non-interest income in the upcoming period.Optimizing Branch Network: Wells Fargo keeps investing in and optimizing its branch network. It is being more deliberate about branch location strategy, as the number of branches declined 3% year over year to 4,177 in 2024.As part of its attempts to improve the branch experience, the company is investing more in branch staff and upgrading technology. One such improvement is a new digital account opening process that has proven beneficial for bankers and consumers alike.Management is keen on updating its branches. It already upgraded 730 of them in 2024. The company plans to update all the branches in the next five years. WFC's mobile user base is expanding rapidly. It grew mobile active customers by 1.5 million in 2024, up 5% from a year ago. This momentum is expected to continue as the company undertakes further improvements to provide clients with more self-service options and value-added information, such as balanced trends and subscription expenditure.Prudent Expense Management: Wells Fargo’s prudent expense management initiatives have been supporting its financials. Since third-quarter 2020, the company has been actively engaged in cost-cutting measures, including streamlining organizational structure, branch closure and headcount reductions. By the end of 2024, its headcount declined 3.5% from 2023-end.Driven by these initiatives, WFC’s non-interest expenses edged down 1.2% in 2024 from 2023. Management expects $2.4 billion of gross expense reductions in 2025, driven by efficiency initiatives.Non-Interest Expense Outlook Image Source: Wells Fargo & Company Bullish Analyst Sentiments for WFCOver the past seven days, the Zacks Consensus Estimate for Wells Fargo’s 2025 and 2026 earnings has moved upward. The estimate for both years indicates year-over-year growth.Estimate Revision Trend Image Source: Zacks Investment Research Earnings Estimate Image Source: Zacks Investment Research Find the latest EPS estimates and surprises on Zacks Earnings Calendar.WFC Stock Trades at a DiscountFrom a valuation standpoint, Wells Fargo appears somewhat inexpensive relative to the industry. The company is currently trading at a forward 12-month P/E multiple of 13.21X, below the industry average of 14.34X.Price-to-Earnings F12M Image Source: Zacks Investment Research The stock is trading at a discount than its peer, JPM’s current forward 12-month P/E of 14.85X while trading at a premium compared with BAC's forward 12-month P/E of 12.61X.Right Time to Buy Wells Fargo Stock?WFC’s progress in fixing compliance problems will help lift the asset cap. This will allow the company to offer loans without restrictions, supporting the top-line expansion. Its progress on efficiency initiatives, such as branch and footprint reduction, will support cost reduction. The Fed rate cuts will support its NII and NIM growth in the coming period. Wells Fargo’s management is optimistic about a better 2025 under the Trump administration. CEO Scharf, during the fourth quarter earnings call, stated, “We are predominantly a U.S. bank, we succeed when the country succeeds. So the incoming administration's support of U.S. businesses and consumers gives us optimism as we look forward. Additionally, the incoming administration has signaled a more business-friendly approach to policies and regulations, which should benefit the economy and our client.”The company’s strong growth potential, inexpensive valuation and positive estimate revisions make its stock worth collecting. Hence, investors should consider investing their cash in WFC at its current price levels for solid long-term returns.Wells Fargo currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Bank of America Corporation (BAC): Free Stock Analysis Report Wells Fargo & Company (WFC): Free Stock Analysis Report JPMorgan Chase & Co. (JPM): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks