Wells Fargo and Co. (WFC) is ticking higher in Wednesday’s pre-market after beating Q1 2021 top and bottom line estimates by wide margins. America’s third largest bank posted a profit of $1.05 per-share, $0.40 better than expectations, while revenue rose just 2.0% year-over-year to $18.06 billion, beating consensus by $600 million. Credit loss provisions decreased by $5.1 billion, underpinned by “continued improvements in the economic environment.”
Waiting on Fed Approvals
The bank is overhauling its risk management and governance as part of a Fed-guided plan to lift asset caps, which in turn will improve shareholder benefits and allow greater risk taking. It’s now expected that temporary restrictions on bank holding company dividends and share repurchases put into place at the start of the pandemic will end for most firms on June 30. Wells is scrambling to get required policies in place ahead of final approvals later this quarter.
Credit Suisse analyst Susan Roth Katzke summed up improved sentiment recently, noting, “We asked for targets and supporting disclosure to increase clarity on the path to improved returns; both were delivered with fourth quarter results. To be sure, the path forward has its obstacles and revenue growth remains a challenge, but the combination of evident progress, incremental investment, excess capital, and the inherent franchise opportunity reduce the downside risk and render the aspiration of a 15% ROTE achievable, in time”.
Wall Street and Technical Outlook
Wall Street consensus now stands at an ‘Overweight’ rating based upon 14 ‘Buy’, 3 ‘Overweight’, and 10 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions. Price targets currently range from a low of $34 to a Street-high $65 while the stock is set to open Wednesday’s session about $3 below the median $43 target. While modest upside is possible with this placement, prolific gains many have to wait for the Fed’s OK on dividends and buybacks.
Wells Fargo underperformed its rivals after 2016’s disclosure it created millions of fraudulent savings and checking accounts. The stock posted an all-time high in January 2018 and turned sharply lower through 2019 and into 2020 when the bottom dropped out following the Wuhan outbreak. The recovery wave since October has stalled at the .618 Fibonacci retracement of the selloff that began in December 2019, generating much weaker gains than bank indices and commercial rivals that are now trading at multiyear and all-time highs.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.