On Monday, Evercore ISI updated its outlook on Wells Fargo & Company (NYSE:WFC) shares, raising the price target to $71.00 from $68.00 and maintaining an Outperform rating on the stock. The firm's analysis followed Wells Fargo's third-quarter results, leading to an upward revision of the bank's earnings per share (EPS) estimates for 2025 and 2026.
The revised forecasts for 2025 and 2026 EPS are now set at $5.38 and $6.56, marking a 4% increase from the previous estimates of $5.16 and $6.31, respectively. Despite a slight downward adjustment in the fiscal year 2024 net interest income (NII) forecast, reflecting a 9.3% year-over-year decline, the overall earnings outlook for Wells Fargo is deemed relatively de-risked.
The positive adjustments for the coming years are attributed to an optimistic fee outlook, underpinned by continued momentum in trading, investment banking, and investment advisory sectors. While the NII for 2025 is expected to be modestly lower due to a reduced fourth-quarter 2024 exit rate and more conservative balance sheet growth assumptions, the firm anticipates the NII trough to occur in the first quarter of 2025.
Expense projections for 2025 are modeled to remain roughly flat, leading to a 200 basis point negative operating leverage due to NII headwinds, before turning to a 300 basis point positive leverage in 2026. Credit trends in the third quarter showed notable improvement, fostering optimism for the 2025 net charge-off forecast, which has been adjusted to 52 basis points from 67 basis points.
Share repurchase expectations for 2025 have also been increased to $12 billion, up from the prior estimate of $11.2 billion. The firm's stance on Wells Fargo remains constructive post the third-quarter results, citing an intact fundamental story with better-than-feared NII levels, improving fee momentum, stable credit conditions, and ongoing capital return as positive factors.
The analysis acknowledges that Wells Fargo's regulatory outlook is expected to steadily improve, with the potential for asset cap relief and progress on existing consent orders. Although the recent Bank Secrecy Act/Anti-Money Laundering (BSA/AML) formal agreement with the Office of the Comptroller of the Currency (OCC) is seen as a setback, it is assessed as manageable in terms of business and financial impact.
The firm reiterates its Outperform rating and increased price target, reflecting confidence in Wells Fargo's revised EPS expectations for 2025.
In other recent news, Wells Fargo has demonstrated a solid performance in the third quarter with a net income of $5.1 billion. The company's CEO, Charlie Scharf, highlighted a return on equity (ROE) of 11.7% and a return on tangible common equity (ROTCE) of 13.9%. Fee-based revenue grew by 16% year-to-date, and the CET1 capital ratio improved to 11.3%. Wells Fargo also completed $3.5 billion in stock repurchases in Q3 and announced a 14% dividend increase.
JPMorgan maintained a neutral rating on Wells Fargo following the earnings release. The firm's analysis focused on the bank's net interest income (NII) excluding market-related gains, which has seen a substantial quarter-over-quarter drop. The timeline for this figure to bottom out remains uncertain, given Wells Fargo's large consumer deposit base.
In addition to these developments, the state of the U.S. consumer's financial health is in the spotlight as corporate earnings reports and retail sales data are expected to provide new insights into the economy's endurance.
Analysts anticipate that the upcoming earnings reports from consumer-oriented companies will reinforce the positive economic data trend. Goldman Sachs has revised its recession probability for the U.S., lowering the chance of a downturn in the next year to 15%, following encouraging employment data.
InvestingPro Insights
To complement Evercore ISI's optimistic outlook on Wells Fargo & Company (NYSE:WFC), recent data from InvestingPro provides additional context to the bank's financial performance and market position.
Wells Fargo's market capitalization stands at $204.04 billion, reflecting its significant presence in the banking sector. The company's P/E ratio of 12.74 suggests a relatively modest valuation compared to its earnings, which aligns with the firm's positive earnings outlook for the coming years.
InvestingPro Tips highlight that Wells Fargo has maintained dividend payments for 54 consecutive years, demonstrating a strong commitment to shareholder returns. This is particularly relevant given Evercore's increased share repurchase expectations for 2025. Moreover, the company's trading near its 52-week high and strong return over the last month corroborate the positive sentiment expressed in the analyst report.
The bank's revenue for the last twelve months as of Q3 2024 was $77.88 billion, with a modest growth of 1.81%. This data point provides context to the analyst's expectations of fee momentum in trading, investment banking, and investment advisory sectors.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Wells Fargo, providing a deeper dive into the company's financial health and market position.
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