Wells Fargo (WFC) reported 4th quarter results this Friday morning that sent the share price slightly lower, as there is concern regarding a big jump in credit loss provisions.
The California-based bank bolstered its reserves by 34%, specifically increasing the allowances for credit losses in credit card and commercial real estate loans. This was offset by a decrease in allowances for auto loans.
Chief Executive Charlie Scharf says that the company is keeping a close eye on credit, and although there is some degree of deterioration, it’s relatively in line with what’s been anticipated.
Wells Fargo did grow net income to $3.45 billion for the quarter, a solid improvement year over year from $3.16 billion last year. This came out to 86 cents a share, which fell right in line with the FactSet consensus.
Revenue climbed a modest 2.2% to $20.48 billion, narrowly outperforming the consensus of $20.30 billion. Over loans came down right around 1% to $938 billion while deposits of $1.34 trillion represented a 2.9% drop year over year.
This decrease in deposits led to a lower net interest income of $12.77 billion, down 4.9%. However, the expectation was only $12.76 billion, so the company barely outperformed.
The most exciting win for the quarter was a big boost to noninterest income – up nearly 17% to $7.71 billion, beating out the forecast of $7.51 billion. This was a result of higher trading revenue, increased investment banking fees, and success in the venture capital segment.
While the stock is down nearly 3% in Friday’s trading session, WFC is still up more than 16% over the past 3 months. It’s outperforming the financial sector ETF and the S&P 500 index as a whole. So, where does that leave you as an investor?
We recognize the concern regarding an increase in loan loss provisions, but we still see a few reasons to buy this stock when looking through the VectorVest stock analysis software…
WFC May Have Poor Safety, But it Still Has Very Good Upside Potential and Timing
VectorVest is a proprietary stock rating system that saves you time and stress while helping you win more trades. You’re given all the insights you need to make calculated, confident decisions in 3 ratings: relative value (RV), relative safety (RS), and relative timing (RT).
Each rating sits on its own scale of 0.00-2.00 with 1.00 being the average, allowing for quick and easy interpretation. You’re even presented with a clear buy, sell, or hold recommendation based on the overall VST rating for any given stock at any given time. As for WFC, here’s what we’ve found:
- Very Good Upside Potential: The RV rating compares a stock’s long-term price appreciation potential (based on a three-year forecast) to AAA corporate bond rates and risk. This offers much better insight than a simple comparison of price to value alone. WFC has a very good RV rating of 1.33. Moreover, the stock is undervalued with a current value of $62.39/share.
- Poor Safety: The RS rating is a risk indicator derived from an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, business longevity, sales volume, price volatility, and other factors. WFC has a poor RS rating of 0.81 right now.
- Very Good Timing: The RT rating is based on the direction, dynamics, and magnitude of the stock’s price movement day over day, week over week, quarter over quarter, and year over year. Despite falling a bit today, the stock has been rallying in the right direction for a while. This performance is evidenced by a very good RT rating of 1.32.
The overall VST rating of 1.18 is good, and enough to earn WFC a BUY recommendation in the VectorVest system. Learn more about this opportunity now through a free stock analysis!
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VectorVest advocates buying safe, undervalued stocks, rising in price. WFC fell slightly after announcing an increase to credit loss provisions, despite an otherwise solid quarter of performance. VectorVest acknowledges the stock has poor safety, but it also has very good upside potential and timing right now - making it an attractive buy opportunity.
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