Wells Fargo

Stock: WFC

Rating: Good

Author: Waleed M. Tariq

Heading

  • WFC stock has outperformed BOA, JPM, and GS during the past year.
  • S&P 500 performs better during Fed rate hikes than rate cuts or normal times.
  • I’m positive on the stock because of economic growth.

Bullish

  • Due to the economy’s comeback, rate hikes, and cost-cutting, Wells Fargo expects significant top- and bottom-line growth.
  • Wells Fargo shares topped competitors with a 52-week and YTD rise of almost 1%.
  • WFC can use its huge U.S. presence, powerful operations, and investment banking and wealth management offerings.
  • The company can optimize its resource use and returns.

Bearish

  • The company has some legal concerns that must be addressed otherwise they will cripple their flourishing business.

Rate hikes and profits

  • Loan-interest income and deposit-interest expenses boost earnings. Higher rates improve loan, mortgage, and credit card income.
  • S&P 500 performs better during Fed rate hikes than rate cuts or normal times.
Business Insider
A chart shows S&P 500 yearly performances in Fed rate-hike cycles.
Business Insider

Improving efficiency ratio

  • Removing administrative layers, automating lending procedures, streamlining branches, and decreasing office real estate costs dropped MRQ expenses from $57.6 bn in 2020 to $53.8 bn in 2021.
  • Q4 2021 efficiency ratio fell 9 percent to 69 percent. The corporation costs $69 to make $100, or 69%.
WFC break down of operational efficiencies from Q4 2020 presentation
Wells Fargo

Dividends

  • The company raised its dividend from $0.10 to $0.20 to $0.25 in 2021.
  • Investors can expect share buybacks and dividend increases in 2022.

Conclusion

  • The financial services sector, especially banks, is bullishly influenced by the economic resurgence and interest rate hikes and thus WFC is a nice addition to ones portfolio.