Shares of Wells Fargo & Co. fell 6% on Wednesday after the bank reported lower-than-expected 3Q earnings of $0.42 per share, compared to analysts’ expectations of $0.44 per share. In the prior-year period the firm reported EPS of $0.92 per share.
Wells Fargo’s (WFC) 3Q revenues dropped 14% year-over-year to $18.9 billion, exceeding the Street’s estimates of about $18 billion.
The bank reported a decline of about 19% year-over-year in net interest income to $9.4 billion, due to lower interest rates. While average loans declined 2% year-over-year to $931.7 billion, average deposits rose 8% to $1.4 trillion in the quarter.
The company’s CEO Charlie Scharf said “Our third quarter results reflect the impact of aggressive monetary and fiscal stimulus on the US economy. Strong mortgage banking fees, higher equity markets, and declining sequential charge-offs positively impacted our results, while historically low interest rates reduced our net interest income and our expenses continued to remain elevated.”
He added that “As we look forward, the trajectory of the economic recovery remains unclear as the negative impact of COVID continues and further fiscal stimulus is uncertain, but we remain strong with our capital and liquidity levels well above regulatory minimums.” (See WFC stock analysis on TipRanks).
Following the results, Raymond James analyst David Long reiterated his Sell rating on the stock. He said “We continue to believe revenue growth and its overall fundamental performance will remain challenged given the asset cap, ongoing regulatory reviews, competitive pressures, and the challenging economic backdrop. While the bank has embarked on a profitability improvement initiative, positive results remain distant.”
Currently, the Street remains sidelined on the stock. The Hold analyst consensus is based on 9 Holds, 6 Buys and 3 Sells. The average price target of $29.93 implies upside potential of about 28.7% to current levels. Shares have declined by about 56.8% year-to-date.