Is Wells Fargo Stock Undervalued Or Overvalued? How To View Its Valuation

seekingalpha2021-09-08

Summary Wells Fargo has generated great returns over the last year, but shares are still not expensive today. The outlook over the coming years is solid, thanks to cost-cutting efforts and a rapid ...

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Kimmikim
2021-09-08
Kimmikim
K
- Kimmikim:
  K
- YH91:
  Like
IAmThankful
2021-09-08
IAmThankful
Wow
- kukumolu:
  ok
Sriwonc
2021-09-08
Sriwonc
Like pls
- rae90:
  cool

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How To View Its Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-09-08 20:53 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4454012-wells-fargo-stock-overvalued-undervalued><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nWells Fargo has generated great returns over the last year, but shares are still not expensive today.\nThe outlook over the coming years is solid, thanks to cost-cutting efforts and a rapid ...</p>\n\n<a href=\"https://seekingalpha.com/article/4454012-wells-fargo-stock-overvalued-undervalued\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"WFC","symbol_name":"富国银行","start_time":0,"source_url":"https://seekingalpha.com/article/4454012-wells-fargo-stock-overvalued-undervalued","article_id":"1153626161","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1153626161","pubTimestamp":1631105587,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Summary\n\nWells Fargo has generated great returns over the last year, but shares are still not expens","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"WFC":"富国银行"},"translate_title":"富国银行股票被低估还是被高估？如何看待其估价","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"WFC":0.9},"content_text":"Summary\n\nWells Fargo has generated great returns over the last year, but shares are still not expensive today.\nThe outlook over the coming years is solid, thanks to cost-cutting efforts and a rapid buyback pace.\nShares are trading close to the 52-week high today. Investors might want to wait for a better entry point.\n\nArticle Thesis\nWells Fargo & Company (WFC) is a leading bank that still has to battle the lingering effects of its accounts scandal a couple of years ago. Shares have recovered from steep losses during the first phase of the pandemic, but Wells Fargo's shares remain relatively inexpensive. If the bank's management team can continue to turn the ship around and improve WFC's expense ratio, shares could have significant upside potential over the coming years.\nWFC Stock Price\nBroad equity markets have been running from high to high in recent months, and even though Wells Fargo has a strong one-year performance as well, its shares continue to trade well below all-time-highs:\n\nData byYCharts\nAt $44 per share, WFC is trading ~33% below the all-time high from 2018, when shares breached well above $60 for a short period of time. Over the last year, Wells Fargo & Company has delivered a very attractive share price gain of close to 100%, before dividends, which means that everyone that bought during the pandemic-fueled market crash has seen shares deliver highly attractive returns. Last fall, when Berkshire Hathaway's (BRK.A)(BRK.B) sale of its WFC stake got public, we noted that this was a mistake by Buffett, and Cash Flow Kingdomrecommendedto go long back then -- shares have delivered an attractive 85% total return since then. Even at $44, and following those sizeable gains, shares are not overly expensive, however, as the earnings outlook for Wells Fargo has improved quite meaningfully over the last year as well. Analysts believe that shares trade slightly fair value, as they see about a 10% upside towards a consensus price target of $49.\nIs Wells Fargo Stock Expected To Continue To Rise?\nMany things impact share prices in the short term, including sentiment, political news, and many more non-company-specific factors. It is thus not possible to know where shares will be trading a week or a month from now, but it should be noted that some factors could help WFC climb higher in the foreseeable future.\n\nData byYCharts\nEarnings per share estimates for WFC for fiscal 2021 and fiscal 2022 have risen over the last couple of months, which does, all else equal, lead to positive share price growth. Since the economy in the US continues to recover, more credit provision releases in coming quarterly reports, and further EPS estimate increases could help WFC make more gains in H2 of 2021. Wells Fargo's current relative strength index reading of 52 does imply that shares are neither oversold nor overbought, thus the short-term outlook from a technical perspective is at least not a bad one. The 20-day moving average is above the 50-day moving average, which, in turn, is north of the 200-day moving average, which generally is a bullish setup that could imply further upside. I personally wouldn't buy based on that alone, however, and since we do like to purchase with a longer-term horizon anyways, we do not worry about short-term price movements or the very near-term outlook too much.\nIs Wells Fargo Undervalued?\nIn the long run, Wells Fargo has significant upside potential, at least if things go right. Let's take a look at Wells Fargo's valuation first. Based on current earnings per share estimates for fiscal 2021, WFC is trading at 11x net profits today, which is far from a high valuation.\nData byYCharts\nLooking at the 3-year to 10-year median earnings multiples, we see that Wells Fargo used to trade at a somewhat higher valuation historically. Even the 3-year earnings multiple median, which is impacted by the COVID selloff and the account scandal to a significant degree, is slightly higher than WFC's current earnings multiple. The upside towards the 5-year or 7-year median earnings multiple is ~20% from where shares are trading today. One could thus say that WFC is indeed undervalued today, although not to an excessively large degree -- there is some upside potential to where shares used to trade in the past.\nWhen we look at Wells Fargo's current and historic tangible book value multiples, the discount to fair value looks somewhat larger:\n\nData byYCharts\nShares trade for around 1.4x tangible book value today, which represents a 25%+ discount compared to how shares were valued in the past. If Wells Fargo does eventually manage to generate the returns on equity it has generated in the past, which would theoretically justify a similar price to book value as in the past, then shares would have significant upside potential from the current level, not factoring in any future book value growth yet. It is, however, not guaranteed that WFC will get its ROE back up to where it stood in the past -- and if that were to happen, it will likely not happen in 2021 or 2022.\nBanking is not a very high-growth industry, but Wells Fargo still has the potential to grow its profits at an attractive pace over the coming years, at least on a per-share basis. Growth drivers include the eventual lifting of the Fed-imposed asset cap, efficiency gains, and share repurchases. The asset cap was introduced a couple of years ago following the accounts scandal, and said asset cap has prevented Wells Fargo from growing its loan portfolio in line with growth seen at JPMorgan (JPM) and other peers. Once the asset cap is lifted, which should happen in the coming years, Wells Fargo should be able to generate at least some business growth once again. On top of that, the company has a lot to gain from cutting operating expenses. The bank used to operate with one of the best efficiency ratios among the major banks, but for now, above-average expenses pressure its margins. The bank's CEO Charles Scharf is ambitious when it comes to improving profitability, however, and some improvements have already been made. I expect that more cost-cutting over the coming years will allow Wells Fargo to grow its profits further. Last but not least, Wells Fargo should see sizeable earnings per share gains from buybacks. The bank has announced a$18 billion buyback programin June. This program, which will run through June 2022, will allow the company to repurchase 9% of its common shares at current valuation levels, which alone will have a significant impact on earnings per share growth. In fact, if net income does remain constant forever, a 9% annual buyback pace would be enough for the bank to generate 10% annual earnings per share growth.\nProfits in 2022 will likely be lower than the profits the bank will generate this year, due to the fact that the company will not benefit from credit provision releases next year. But starting in 2023, Wells Fargo should see considerable earnings per share growth again, due to the factors showcased above. Earnings per share are forecasted to grow from $3.60 in 2022 to $4.30 in 2023, and analysts see WFC growing its earnings per share to$5.80over the following five years for a 6% annual growth rate.\nIs WFC Stock A Buy, Sell, Or Hold?\nIf Wells Fargo does indeed manage to earn $5.80 in 2028, which seems like a solid base case assumption even though I believe that actual results could be even better, then we can guesstimate a share price of $75 in 2028, using Wells Fargo's median earnings multiple of 13. With shares trading at $44 today, there thus is an upside potential of more than 60% from current prices over the next seven years, which pencils out to annual returns 7%+. That is not outstanding, but still very solid. Wells Fargo's current dividend yield is 1.7%, and due to the fact that the payout ratio is pretty low at just 20%, future dividend increases seem likely. When we add the current dividend yield to the expected share price gains over the coming years, we get to annual returns in the 9% range, which is pretty solid. Depending on the pace of buybacks in coming years, the timing of the asset cap being lifted, and WFC's progress in cutting expenses, actual returns could be higher. There is, of course, also the possibility that returns will be lower, e.g. in case more scandals such as the accounts scandal from a couple of years ago emerge (which I do not see as a likely scenario, however).\nAll in all, investors can expect solid returns from an investment in Wells Fargo at current prices, I believe. At the same time, however, WFC trades at the highest price it has traded at in the last year, and right now may not be the best time to enter or expand a position -- shares were a massively better buy a year ago. Even in July one could have bought WFC in the low $40s, and a similar buying opportunity could arise in the future again, which is why I believe that investors might do better in waiting for a better entry price. I thus rate Wells Fargo a hold, today, in the mid-$40s per share.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":889973536,"gmtCreate":1631107365025,"gmtModify":1632884603833,"author":{"id":"3587034039252261","authorId":"3587034039252261","name":"Kimmikim","avatar":"https://static.tigerbbs.com/5245979307e650b7f31c25334244e006","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3587034039252261","authorIdStr":"3587034039252261"},"htmlText":"K","listText":"K","text":"K","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":2,"repostSize":0,"link":"https://laohu8.com/post/889973536","repostId":1153626161,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5794026,"gmtCreate":1631107373688,"gmtModify":1634805312694,"authorId":3587034039252261,"author":{"id":3587034039252261,"idStr":"3587034039252261","authorId":3587034039252261,"name":"Kimmikim","avatar":"https://static.tigerbbs.com/5245979307e650b7f31c25334244e006","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":889973536,"type":1,"supId":0,"prevId":0,"content":"K","text":"K","html":"K"},{"id":5794289,"gmtCreate":1631108714053,"gmtModify":1634805293709,"authorId":3581983079393503,"author":{"id":3581983079393503,"idStr":"3581983079393503","authorId":3581983079393503,"name":"YH91","avatar":"https://static.tigerbbs.com/0ede7766309f22a2f427a98234ab488c","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":889973536,"type":1,"supId":0,"prevId":0,"content":"Like ","text":"Like ","html":"Like "}],"langContent":"EN"},{"id":889951356,"gmtCreate":1631105998975,"gmtModify":1631892270925,"author":{"id":"3572176137415007","authorId":"3572176137415007","name":"IAmThankful","avatar":"https://static.tigerbbs.com/70c6aad0b12d9421dbbed3a0b64ed057","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3572176137415007","authorIdStr":"3572176137415007"},"htmlText":"Wow","listText":"Wow","text":"Wow","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/889951356","repostId":1153626161,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5795452,"gmtCreate":1631113005434,"gmtModify":1634805216069,"authorId":3581984006176179,"author":{"id":3581984006176179,"idStr":"3581984006176179","authorId":3581984006176179,"name":"kukumolu","avatar":"https://static.tigerbbs.com/968c9b6dacd85f184faef66f2db6a7a7","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":889951356,"type":1,"supId":0,"prevId":0,"content":"ok","text":"ok","html":"ok"}],"langContent":"EN"},{"id":889953797,"gmtCreate":1631105978319,"gmtModify":1632884616487,"author":{"id":"3586424409701165","authorId":"3586424409701165","name":"Sriwonc","avatar":"https://static.tigerbbs.com/264a5cfcdc2db585d9b139a4c4d7b11d","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3586424409701165","authorIdStr":"3586424409701165"},"htmlText":"Like pls","listText":"Like pls","text":"Like pls","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/889953797","repostId":1153626161,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5794838,"gmtCreate":1631110578096,"gmtModify":1634805253461,"authorId":3568861531931848,"author":{"id":3568861531931848,"idStr":"3568861531931848","authorId":3568861531931848,"name":"rae90","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":889953797,"type":1,"supId":0,"prevId":0,"content":"<u>cool</u>","text":"<u>cool</u>","html":"<u>cool</u>"}],"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":35,"commentSize":3,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1153626161"}