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Earning Release Review 20250716 Well Fango (WFC)



Well Fango 

 

Weekly

Wells Fargo (WFC)
  • Earnings Performance: Delivered in-line results for Q2 2025, with solid performance but increased credit provisions signaling caution on loan defaults.
  • Guidance Adjustment: Trimmed net interest income (NII) guidance, reflecting challenges in a shifting interest rate environment.
  • Digital Asset Exposure: Disclosed holdings in spot Bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust, indicating a cautious but growing embrace of cryptocurrencies.
  • Stock Performance: Shares traded 6.5% lower on March 5, 2025, amid broader market concerns over economic growth and tariffs.

Daily Chart

Hourly Chart


Wells Fargo (WFC)
  • Earnings Performance:
    • EPS: Reported $1.60 per share, beating analyst expectations of $1.41.
    • Revenue: Total revenue of $20.8 billion, in line with estimates of $20.8 billion, but down slightly year-over-year due to challenges in net interest income (NII).
    • Net Interest Income (NII): NII guidance was trimmed, reflecting pressure from higher funding costs and lower loan balances, with a projected 9% decline for 2025, worse than the expected 8.4%.
    • Credit Provisions: Increased provisions for potential loan losses, indicating caution about credit quality amid economic uncertainty.
    • Non-Interest Income: Grew 12% to $8.7 billion, driven by venture capital investments, asset-based fees in Wealth and Investment Management, and higher investment banking fees.
    • Strategic Developments: The lifting of the $1.95 trillion asset cap in Q2 2025, imposed after the 2016 fake accounts scandal, allows WFC to expand market-making, trading, and investment banking.
    • Efficiency Efforts: Reduced headcount and streamlined processes, targeting $2.4 billion in gross expense reductions in 2025, while modernizing 730 branches and planning further upgrades.
    • Digital Asset Exposure: Disclosed holdings in spot Bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust, signaling a cautious entry into cryptocurrencies.
  • Market Reaction: Shares fell 3% in premarket trading on July 15, 2025, after the NII guidance cut overshadowed the EPS beat.
  • Management Commentary: CEO Charlie Scharf noted a strong U.S. economy with slowing inflation and resilient consumer spending, but highlighted challenges for lower-income consumers due to inflation’s cumulative impact.
  • Key Strengths:
    • Strong non-interest income growth from investment banking and wealth management.
    • Removal of the asset cap enhances growth potential in competitive segments.
    • Cost-cutting initiatives support profitability.
  • Key Weaknesses:
    • NII pressure due to higher funding costs and Fed rate cuts.
    • Increased credit provisions suggest caution about economic slowdown.
Wells Fargo (WFC)
  • Performance Context: WFC’s Q2 2025 net income was $5.7 billion (annualized estimate based on $1.60 EPS and 3.56 billion shares). Revenue was flat at $20.8 billion, but cost reductions and asset cap removal support future FCF growth.
  • FCF Estimation:
    • 2024 net income: $20 billion.
    • Assume Q2 2025 annualized net income of $22.8 billion ($1.60 EPS × 3.56 billion shares × 4 quarters).
    • Add back non-cash items (depreciation, provisions) and adjust for working capital: Assume FCF of $25 billion for 2025.
    • Growth: 3% annually for 5 years, reflecting cost efficiencies and asset cap removal, but tempered by NII pressure.
    • FCF Projections (2025–2029): $25B, $25.75B, $26.52B, $27.32B, $28.14B.
  • Terminal Value: Year 5 FCF ($28.14B) × (1 + 2.5%) / (WACC – 2.5%).
  • WACC: Beta ~1.0 (industry norm for large banks), risk-free rate 4%, equity risk premium 6%, debt-to-equity ratio ~1.5 (typical for banks). WACC ≈ 8.5%.
  • Terminal Value: $28.14B × 1.025 / (0.085 – 0.025) = $480.65B.
  • Present Value:
    • Discount FCFs at 8.5%: $25B/(1.085) + $25.75B/(1.085²) + $26.52B/(1.085³) + $27.32B/(1.085⁴) + $28.14B/(1.085⁵) = $104.6B.
    • Discount terminal value: $480.65B/(1.085⁵) = $323.4B.
    • Total enterprise value: $104.6B + $323.4B = $428B.
  • Net Debt: Assume $150B (based on historical bank debt levels).
  • Equity Value: $428B – $150B = $278B.
  • Shares Outstanding: 3.56 billion (Yahoo Finance estimate).
  • Ideal Price: $278B / 3.56B = $78.09 per share.
  • Current Price Context: As of July 14, 2025, WFC traded at ~$68 (based on 17.3% YTD gain from a lower base). The DCF suggests a 15% upside, consistent with its forward P/E of 13.21x vs. industry 14.58x.

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