Wells Fargo Q4 preview: Where next for WFC stock?

Wells Fargo shares have underperformed since the start of the pandemic, but is the stock set to outperform in 2022?

FED 10

When will Wells Fargo release Q4 earnings?

Wells Fargo will release fourth quarter earnings before the opening bell on Friday January 14.

 

Wells Fargo Q4 earnings preview: what to expect from the results

Wells Fargo is set to report its first annual rise in revenue in three years when it releases results this week, having underperformed its peers since the start of the pandemic. The Dow Jones US Bank Index ended 2021 almost 20% higher than the at the start of the pandemic as they managed to reap record profits, while Wells Fargo had only gained a tepid 2.2% gain.

Wells Fargo has been treated differently to its peers since an asset cap was imposed on the bank by the Federal Reserve back in 2018 following a string of scandals and failures across the business, from overcharging consumers to having millions of fake accounts on its books. This has prevented the bank from growing its balance sheet over the $1.95 trillion it had back in 2017, which in turn has limited its ability to lend, invest and ultimately grow.

Meanwhile, Wells Fargo’s more traditional style of banking concentrated on borrowing and lending means it has less exposure to investment banking and trading than its rivals, causing it to miss out on the bumper profits reaped by its competitors thanks to an explosion in dealmaking within the M&A sector and volatile markets.

And this comes at a time when the wider banking industry is battling against higher costs as they spend on attracting staff and investing in digital operations in order to stave-off competition from digitally-savvy fintech rivals.

But Wells Fargo shares have made a solid start to 2022 and have rallied 10.5% since the start of the year as investors expect a solid set of earnings, and on hopes that management have finally been able to put the company’s troubles behind it and that the Fed could lift the asset cap soon.  Plus, Wells Fargo’s lending-heavy business means it is touted to be one of the biggest beneficiaries if the central bank pushes ahead with interest rate hikes this year. The outlook for 2022 is expected to be bullish as a result.

Wall Street is expecting Wells Fargo to report a 4.9% rise in revenue in the fourth quarter to $18.81 billion from $17.93 billion the year before. Diluted EPS is forecast to jump over 75% to $1.12 from $0.64 last year.

Earnings are expected to be aided by the release of around $1 billion of reserves set aside for potentially bad loans during the pandemic, providing a net benefit of around $500 million. That would mark a slowdown from the $1.7 billion released in the third quarter.

The bank’s net interest margin, a key measure of profitability within the industry, is set to come in at 2.04%, up 1 basis point from the previous quarter but down 3% from last year.

 

Where next for WFC stock?

Wells Fargo shares have recently moved above the $55 mark that proved to be a ceiling during the backend of both 2019 and 2018. So long as it remains above this level, the stock will be eyeing $59.50, which was a key level of resistance throughout the third quarter of 2018.

On the downside, any disappointment in terms of earnings or outlook could see shares head lower toward the 50-day sma at $50. The RSI has slipped into overbought territory, suggesting we could see some temporary selling pressure before the stock is able to find higher ground.

Volumes have been markedly higher since the start of 2022 compared to the average volumes seen during the past three months of 2021, and these are likely to spike around the release of earnings as it has done in the past.

Where next for WFC stock?

(Source: Eikon)

 

How to trade the WFC share price

You can trade WFC shares with City Index in just four easy steps:

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for ‘WFC’ in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.