Wells Fargo & Company

WFC Details

Wells Fargo & Company (NYSE: WFC) is a bank holding company and a diversified financial services company that offers services under three key categories namely personal, small business, and commercial. The company is engaged in providing retail, commercial and corporate banking services via banking locations and offices, the internet, and other various distribution channels to businesses, individuals, and institutions.

Result Performance (Q2FY21 – Ended 30 June 2021)

• Net Interest Income Declined: Due to the impact of lower interest rates and lower loan balances reflecting soft demand and elevated prepayments, as well as higher mortgage-backed securities premium amortization, partially offset by a decline in long-term debt, the company’s net interest income declined by 11% YoY to $8,800 million.
• Rise in Non-Interest Income: Non-interest income of the company increased by 37% YoY to $11,470 million, which was driven by improved results in its affiliated venture capital and private equity businesses and its mortgage banking business.
• Net Income stood at $6,040 million in Q2FY21 as compared to a net loss of $3,846 million in Q2FY20

(Source: Company Reports)

Outlook:

The company’s top priority involves building an appropriate risk and control infrastructure for itself along with investing in its business to improve its competitive position for the future. Its recent launch of redesigned Wells Fargo Active CashSM Card is a good example and adds significance to its product portfolio to compete effectively in today's dynamic environment. It believes to see double-digit ROTCE in Q3FY21, which is the first step in achieving returns in the mid-teens.

Key Risks:

The company is susceptible to risks such as credit, interest rate, market, liquidity, and funding risks, and non-financial, such as operational including compliance and model risks, strategic and reputation risks.

Valuation Methodology: Price/BV Based Relative Valuation (Illustrative)

Stock Recommendation:

The stock of the company rose by ~31.15% in 6 months. It has made a 52-week low and high of $20.76 and $51.41, respectively.

The stock has been valued using Price/BVPS multiple based relative valuation (on an illustrative basis) and the target price reflects the decline of low double-digit (in % terms). A slight discount has been applied to Price/BV Multiple (NTM) (Peer Average) considering the risks associated as well as fall in the average loans in Q2 FY 2021 on the YoY basis.

Considering the above facts and trading levels, we give a “Sell” recommendation at the price of US$48.85 per share as on 11:30am GMT-4 Time as on 18^th August 2021.

Daily Technical Chart Overview

Source: REFINITIV, Note: The purple color line represents RSI (14-Period).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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