Wells Fargo’s stock (NYSE: WFC) has gained 2% YTD as compared to the 14% rise in the S&P500 index over the same period. Further, at its current price of $43 per share, the stock is trading 12% below its fair value of $49 – Trefis’ estimate for Wells Fargo’s valuation. The bank surpassed the street expectations in the first quarter of 2023, with total revenues increasing by 17% y-o-y to $20.73 billion. It was mainly driven by a 45% growth in the net interest income, partially offset by a 13% decline in the non-interest revenues. While the NII benefited from improvement in the net interest margin and higher loan balances, the non-interest revenues suffered due to a drop in mortgage banking, deposit-related fees, investment advisory and other-asset-related fees, and net losses from equity securities. On the cost front, the noninterest expenses as a % of revenues saw a favorable decrease in the quarter. However, it was partially offset by an increase in provisions for credit losses from -$787 million to $1.2 billion. Overall, the adjusted net income grew 34% y-o-y to $4.7 billion.
The bank’s top line was down 6% y-o-y to $73.79 billion in FY 2022, despite a 26% y-o-y increase in NII. It was because of a 32% decline in non-interest income. Further, total expenses increased in the year, hurting the net income figure. Notably, the net income was down 40% y-o-y to $12.1 billion.
Moving forward, we expect the NII to drive revenues in Q2 2023. Altogether, Wells Fargo’s revenues are forecast to remain around $79.6 billion in FY2023. Additionally, WFC’s adjusted net income margin is expected to improve in the year, from 16.4% to around 21.5%, leading to an adjusted net income of $17.1 billion. This coupled with an annual EPS of $4.76 and a P/E multiple of just above 10x will lead to a valuation of $49.
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