Wells Fargo Earnings: Encouraging Progress on Regulatory Front, but Economic Uncertainty Abounds

Key Morningstar Metrics for Wells Fargo

• Fair Value Estimate: $65
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Wells Fargo’s Earnings

Wells Fargo WFC reported a middling first-quarter performance, with earnings of $1.39 per share, equating to an annualized return of tangible equity of 13.6%. The bank displayed progress on the regulatory front, but the macroeconomic impact of the tariff policy will remain front and center for the bank.

Why it matters: The impact of tariff-related disruptions didn’t show up in the first quarter, but we think that the impacts will be much more visible in the second. We were somewhat surprised to see that the bank had not increased its allowance for loan losses during the quarter.

• Lackluster results on the NII side, down 6% on a year-over-year basis, had an impact on the bank’s first-quarter profitability. The impact of lower rates on floating rate assets, unfavorable change in deposit mix, and lower loan balances drove the uninspiring performance.
• The bank has been doing an impressive job at expense control, which will be key for the bank to achieve its profitability targets. Core expenses were flattish on a year-over-year basis as the bank was able to carve out efficiencies and was able to invest in technology and other strategic areas.

The bottom line: We intend to maintain our $65 per share fair value estimate for wide-moat-rated Wells Fargo after incorporating first-quarter results and believe that shares are about fairly valued even after the sharp correction.

• We were skeptical about the rally in US bank stocks after the US presidential election, given the lack of clarity around the administration’s policies and the healthy valuations in the sector. Bank stocks have corrected by more than 20% from their highs, and valuations look more appealing now.

Coming up: It is difficult to predict the precise timeline of the asset-cap removal, but the bank seems to be making great progress.

• Five consent orders were closed out in the first quarter, bringing the total to 11 since 2019. Wells Fargo is now closer to its asset cap being lifted than it ever was.