Wells Fargo Set to Report Q1 Earnings: How to Play the Stock Now?

Wells Fargo & Company WFC is slated to report first-quarter 2025 results on April 11, 2025, before market open.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.Among Wells Fargo’s close peers, Bank of America BAC and Citigroup Inc. C are also slated to announce quarterly numbers on April 15. WFC’s fourth-quarter performance benefited from higher non-interest income. However, the decrease in net interest income (NII) was a spoilsport. The Zacks Consensus Estimate for first-quarter 2025 revenues of $20.8 billion suggests a 0.3% year-over-year decline.In the past 30 days, the consensus estimate for earnings for the to-be-reported quarter has been revised downward to $1.23. This indicates a 2.4% decline from the prior-year quarter’s actual.Estimate Revision Trend Image Source: Zacks Investment Research WFC has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in the trailing four quarters, with an average earnings surprise of 11.23%.Earnings Surprise History Image Source: Zacks Investment Research Factors to Influence WFC’s Q1 ResultsLoans & NII:  In the first quarter, the Federal Reserve kept interest rates unchanged at 4.25-4.5%. Thus, Wells Fargo’s NII is not likely to have witnessed significant growth given relatively high interest rates.  An uncertain macroeconomic backdrop, given Trump’s tariff plans, is likely to have resulted in a decent lending scenario. Per the Fed’s latest data, the demand for commercial and industrial, real estate, and consumer loans was modest in the first two months of the quarter. Thus, the company’s lending activity is likely to have witnessed a slight improvement in the quarter to be reported.The Zacks Consensus Estimate for NII is pegged at $11.85 billion, which indicates a marginal rise from the previous quarter’s reported number.Non-Interest Revenues: Despite interest rate cuts by the Federal Reserve in 2024, mortgage rates did not come down meaningfully. The rates hovered near 6.5% in the first quarter of 2025. As such, refinancing activities and origination volumes did not experience significant growth.The Zacks Consensus Estimate for mortgage banking revenues for the first quarter of 2025 is pegged at $273.1 million, suggesting a 7.1% decline from the prior quarter’s reported level.The company’s investment advisory and other asset-based fee revenues are likely to have improved from transactional activities. The consensus mark for investment advisory and other asset-based fee revenues is pegged at $2.6 billion, indicating a sequential rise of 1.4%.Global mergers and acquisitions (M&As) in the first quarter of 2025 were less impressive than previously expected. The deal value and volume rose slightly in the quarter, led by the Asia Pacific region. The year started on an extremely optimistic note, with expectations of a robust investment banking (IB) performance on the back of the Trump administration being business-friendly, and the probability of tax cuts and deregulation. However, none of these materialized, and the rebound disappeared as uncertainty over the tariff and ensuing trade war resulted in extreme market volatility. These developments have led to economic uncertainty, with data indicating a slowdown in the U.S. economy and mounting inflationary pressure. As such, WFC’s IB fee growth is expected to have been affected. The Zacks Consensus Estimate for IB income is pegged at $714.7 million, which indicates a decline of 1.4% on a sequential basis.The Zacks Consensus Estimate for Card fees is pegged at $1.09 billion, suggesting a marginal sequential basis.The Zacks Consensus Estimate for Wells Fargo’s total non-interest income is pegged at $8.94 billion, indicating an increase of 4.7% sequentially.Expenses: WFC’s expenses are expected to have continued flaring up in the first quarter of 2025, given its investments in technology and digitalization efforts. This is likely to have hindered bottom-line growth in the quarter to be reported.Asset Quality: Wells Fargo is likely to have set aside a huge amount of money for potential delinquent loans (mainly commercial loan defaults), given the expectations of higher for longer interest rates and the impacts of Trump’s tariffs on inflation.The consensus mark for total non-accrual loans is pegged at $7.89 billion, suggesting a sequential rise of 2.2%. The Zacks Consensus Estimate for non-performing assets of $8.1 billion indicates a 1.7% increase from the previous quarter.What Our Model Unveils for Wells FargoPer our proven model, the chances of WFC beating estimates this time are high. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is the case here, as you can see below.WFC has an Earnings ESP of +1.53%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.Wells Fargo carries a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.WFC’s Price Performance & ValuationIn the first quarter of 2025, the company’s shares outperformed the industry and the S&P 500 Index. Wells Fargo also outpaced its peers, Bank of America and Citigroup during the same time frame.1Q25 Price Performance Image Source: Zacks Investment Research Now, let us look at the value WFC offers investors at current levels.Currently, Wells Fargo is trading at the forward 12 months' price/earnings (P/E) of 10.15X, below the industry’s forward earnings multiple of 10.39X. The company’s valuation looks inexpensive compared with the industry average.Price-to-Earnings F12M Image Source: Zacks Investment Research Wells Fargo's stock is trading at a premium compared with its peers Bank of America and Citigroup’s forward P/E is 9.24X and 7.41X, respectively.How to Play Wells Fargo Stock Now?Under the leadership of CEO Charlie Scharf, Wells Fargo is strengthening its compliance framework. The bank's improved risk management techniques have received regulatory approval, with progress closely monitored by its operating committee.In March 2025, Reuters reported that investors and analysts were more hopeful that the asset cap of $1.95 trillion imposed on Wells Fargo following the fake account scandal in 2018 would be lifted this year. The optimism fuelled as the bank closed five regulatory actions in 2025 and 11 since 2019. The closure of regulatory actions demonstrates that strengthening its risk management and compliance infrastructure continues to be the mainstay of WFC’s operational strategy.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.Additionally, WFC has been actively engaged in cost-cutting measures, including streamlining organizational structure, branch closure and headcount reductions. These strategic moves aim to lower operating expenses and enhance profitability over the long term.However, as the interest rates are less likely to come down substantially in the near term, it is expected to hurt the borrowers’ credit profile. Wells Fargo remains vigilant about the effects of continuous high rates and quantitative tightening on its loan portfolio. Hence, its asset quality is likely to remain weak.The bank's performance in the near term will be greatly influenced by its capacity to navigate these challenges to improve its financial performance. Hence, investors should not rush to buy the WFC stock but rather keep a close eye on these issues to make a well-informed investment decision. Those who already own the WFC stock can hold on to it because it is less likely to disappoint over the long term, given its strong fundamentals.Want 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 Citigroup Inc. (C): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks