Wells Fargo’s share price has dived over 50% since the coronavirus outbreak. However last week saw the share price rally as the Fed announced its stimulus package aimed at protecting the US economy.
In the long-term, Wells Fargo’s [WFC] position as the US’s biggest mortgage lender means both company and share price performance could be vulnerable, as customers struggle to pay off debt. While the government has intervened with a $2.3 trillion stimulus package, this support won’t last forever.
This week’s Q1 earnings will offer a glimpse of the strain the outbreak is placing on the bank. The question for investors will be has Wells Fargo’s share price put last month’s lows behind it? Or are there more sell-offs to come?
How is Wells Fargo’s share price performing?
Wells Fargo's share price is down over 41.5% this year, a deeper decline than both JP Morgan (-30.4%) and Bank of America (-32.9%). Like other big banks, Wells Fargo’s stock plummeted towards the end February as the coronavirus outbreak widened in the US.
However, Wells Fargo’s share price shot up 21.93% last week following the announcement of the Fed’s stimulus package.
Wells Fargo share price rise after announcement of stimulus package
Why should investors care?
The Fed has agreed to temporarily lift Wells Fargo’s asset cap to help it lend to small businesses during the pandemic. This comes after Wells Fargo had stopped accepting applications under the Fed's $350 billion rescue program. More than 170,000 interested businesses had contacted Wells Fargo in just two days.
Wells Fargo’s chief executive, Charlie Scharf, has made removing the $1.95tn asset cap a priority since his appointment in October. Scharf argues that the bank now, is a very different one to the bank that fraudulently opened fake accounts to boost growth figures.
Number of businesses that contacted Wells Fargo in 2 days
Speaking of which, this quarter saw Wells Fargo settle with the US Department of Justice SEC over the fake-account openings. The scandal, which emerged back in 2016, saw Wells Fargo open fabricated accounts to inflate growth figures. Just how much does Wells Fargo have to cough up for all those fake accounts? $3 billion. Expect this to weigh on earnings this quarter.
Wells Fargo is likely to see a decline in fee revenue as the coronavirus pandemic means more people are staying inside and spending less. Credit card fees and asset management charges are among the revenue streams that could slow this quarter.
Wells Fargo has invested in mobile-banking and digital financial products as it seeks to move with the times. These investments won't have come cheap. Investors and analysts alike will be looking at how these investments have impacted the bottom line. As demand hits unprecedented levels, expectations are that banks will be protecting capital, not spending it.
What do analysts expect?
Wall Street expects Wells Fargo to post $0.57 earnings per this quarter, down from $1.2 seen in the same quarter last year. Revenue is expected to come in at $19.36 billion, down 10.4%.
Wells Fargo's expected revenue
Will it beat expectations? Well, Zacks points out that its consensus estimate for Wells Fargo has declined 9.7% over the past week. This suggests that the bank could, in fact, miss expectations. Something that is possible in an economic environment where analysts are quickly revising forecasts.
Is Wells Fargo’s share price a buy?
For income-seeking investors, Wells Fargo carries a 6.14% forward dividend yield. Yet it wouldn't be surprising if the bank came under pressure to scrap payouts to protect capital.
Of the 31 analysts tracking the share price on Yahoo Finance, the majority rate as a Hold. An average $34.62 12-month price target would see a 4.6% upside if hit.