Wells Fargo extended its recent winning streak to six straight sessions in Friday’s session, despite lower-than-expected third-quarter earnings. Investors instead focused on the bank’s lean management and better-than-expected earnings. LSEG said total sales for the three months ended Sept. 30 were $20.37 billion, down 2.4% from a year earlier, lower than analysts’ expectations of $20.42 billion. Wells Fargo reported results before the opening bell on Friday. However, LSEG data showed earnings of $1.52 per share, beating Wall Street’s consensus estimate of $1.28 per share. Adjusted EPS excludes a 10 cent per share increase due to “fixed income losses related to the repositioning of the investment securities portfolio.” That said, even before adjustments, the reported EPS of $1.42 still looks good compared to expectations. As for the guidance, it was a bit complicated. However, the more important factor is that management expects net interest income (NII) pressure from interest rate trends to bottom out and recover in 2025. Over $61. This is just shy of May’s 52-week high of $62.55, which was also the highest since January 2018. Conclusion We have raised our price target for the company from $62 per share to $66 per share, reiterating our buy rating of 1. There are three reasons for the evaluation. We want banks to become more efficient. Progress toward eliminating the Federal Reserve-imposed asset cap. and an optimistic outlook for the economy and inflation. Explanation: Wells Fargo’s quarterly revenue was disappointing as the bank missed the bank’s net interest margin (NIM) as loans and deposits were slightly lower than expected, resulting in a shortfall in net interest income. That’s the bad thing. But the positives more than make up for those failures. Non-interest income, or fee-based income, a key focus for the Street, rose nearly 12% year over year, beating expectations. Growth in fee-based income is a key element of our investment thesis, as it is more predictable and less at the mercy of interest rate trends, which banks have no control over. Wells Fargo Why we owned it: We bought Wells Fargo as a turnaround story under CEO Charlie Scharf. He is working to clean up the bank’s misconduct and fix its previously bloated cost structure following a series of frauds before he took office. Mr. Scharf is also working to eliminate the Fed’s $1.95 trillion asset cap and increase Wells Fargo’s source of fee income. Competitors: Bank of America and Citigroup Club Portfolio Weight: 4.76% Latest Purchase Date: August 7, 2024 Start Date: January 8, 2021 CEO Charles Scharf on conference call I began my prepared remarks as follows: It’s very different than it was five years ago. Our revenue streams are more diverse as we make strategic investments in many businesses and de-emphasize or sell others, with fee-based revenue increasing 16% in the first nine months I did. This significantly offset the net interest income headwinds we faced last year. ” Wells Fargo’s overall efficiency rate was also lower than expected. This is positive because it is calculated by dividing your total non-interest expenses by your net income. Therefore, the lower this ratio, the more efficiently the bank is operating. At the same time, the company’s Common Equity Tier 1 (CET) ratio, which compares a bank’s capital to its risk-weighted assets, was better than expected, indicating there is still plenty of excess capital that Wells Fargo can profitably reinvest in its business. It shows that. Cash to shareholders. During the third quarter, management returned $3.5 billion to shareholders through share repurchases and an additional $1.4 billion through dividends. Tangible book value per share (TBVPS) significantly exceeded expectations, increasing nearly 12% year over year. Return on tangible common equity (ROTCE), a key metric that investors rely on when determining appropriate valuation multiples, also increased. Financial institution. Higher levels indicate resilience across the U.S. economy. “Our consumer business customers have fared relatively well, benefiting from a strong labor market and rising wages,” Schaaf said on the conference call. …We continue to look for changes in consumer health, but when we look at delinquency statistics across our consumer credit portfolio, both credit and debit card spending is down compared to the same period last year. Although the pace of increase has slowed, it is still on the rise. Healthy…The benefits of slower inflation and the start of easing interest rates should benefit all customers, but especially “Looking forward, the U.S. economy will continue to perform well, with slowing inflation and a resilient labor market, supporting rising incomes and consumer spending,” Schaaf added. “This will provide support. Corporate balance sheets are strong, contributing to both consumption and investment in the economy, but commercial demand has slowed.” We continue to prepare for a variety of economic environments and aim to achieve both increased earnings and growth while preventing downturns. ” Bank profits are especially important to investors because all the money and business flows to these large institutions. Executives like Wells Fargo are in a unique position to have a say not only about the future direction of their own business, but also about the broader economy. I came away from the conference call feeling good, and not just about Wells Fargo’s structure for next year. The bank’s $1.95 trillion asset cap could be lifted in 2025 as Mr. Scharf continues to liquidate Wells Fargo, a crime committed before he took office. That would allow the bank to expand its balance sheet and return more capital to shareholders. Prior to the asset cap decision, Mr. Scharf had been working to strengthen Wells Fargo’s corporate and investment banking (CIB) division. He continued to recruit at the senior level in recent years. A return to Wall Street trading, both in M&A and initial public offerings, would benefit Wells Fargo. Morgan Stanley, another financial firm that will report earnings next Wednesday, stands to gain even more from the deal because a larger percentage of its revenue is tied to investment banking. Guidance Wells Fargo management has updated its outlook for the remainder of this year, expecting NII to decline approximately 9% compared to its 2023 performance of $52.4 billion. This puts us at the high end of the 8% to 9% decline range. Previously provided. A 9% decline would leave NII at about $47.66 billion, below expectations of $48.99 billion, according to FactSet. The update isn’t all that surprising given this year’s interest rate trends. More important is the team’s comment that it expects NII to bottom out this year and recover in 2025. The current (4th) quarter’s NII is expected to match the 3rd quarter results, which is expected just before the rebound. (Jim Cramer’s Charitable Trust is a long WFC. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. I will receive it. 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