The calculations below outline how an intrinsic value for Wells Fargo is arrived at using the Excess Return Model. This approach is used for finance firms where free cash flow is difficult to estimate.
In the Excess Return Model the value of a firm can be written as the sum of capital invested currently in the firm and the present value of excess returns that the firm expects to make in the future.
The model is sensitive to the Return on Equity of the company versus the Cost of Equity, how these are calculated is detailed below the main calculation.
Note the calculations below are per share.
See our documentation to learn about this calculation.
Excess Returns = (Stable Return on equity – Cost of equity) (Book Value of Equity per share)
$-0.04 = (11.17% – 11.27%) * $39.15)
Terminal Value of Excess Returns = Excess Returns / (Cost of Equity - Expected Growth Rate)
$-0.44 = $-0.04 / (11.27% - 2.47%)
Value of Equity = Book Value per share + Terminal Value of Excess Returns
$38.71 = $39.15 + $-0.44Inputs used in model:
Stable EPS = Stable Book Value * Return on Equity
$4.37 = $39.15 * 11.17%
Source: Weighted future Return on Equity estimates from 21 analysts.
Book Value of Equity per Share: $39.15
Source: Weighted future Book Value estimates from 18 analysts.
Expected Growth Rate: 2.47%
Source: Risk Free Rate/ 10 year Government Bond Rate in USD.
Value per share:
Current discount (share price of $54.06): -39.67%
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 11.27% = 2.47% + (1.168 * 7.53%)
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm). Note the market value of equity is used not the book value ($268,470,734,199).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
1.168 = 0.58 (1 + (1- 30%) (127.46%))
Levered Beta used in calculation = 1.168
This company is a bank or financial institution, which is analysed accordingly below.
Mr. Timothy J. Sloan, also known as Tim, has been the Chief Executive Officer of Wells Fargo & Company since October 12, 2016 and as its President since November 17, 2015. Mr. Sloan served as the Chief Operating Officer at Wells Fargo & Company from November 17, 2015 to October 12, 2016. He served as the Head of Wholesale Banking and Senior Executive Vice President of Wholesale Banking at Wells Fargo & Company since May 15, 2014. He served as Head of Wholesale Banking and Senior Executive Vice President of Wholesale Banking at Wells Fargo Bank, National Association. Mr. Sloan was the Chief Financial Officer and Executive Vice President at Wells Fargo Bank, National Association. He served as the of Senior Executive Vice President of Wells Fargo & Company from February 8, 2011 to May 15, 2014. Mr. Sloan served as the Chief Financial Officer and Senior Executive Vice President for Wachovia Preferred Funding Corp. since February 23, 2011. He was Executive Vice President (Commercial Banking, Real Estate and Specialized Financial Services) of Wells Fargo Bank, N.A. from 2006 to 2010 He served as the Chief Administrative Officer of Wells Fargo & Company from September 3, 2010 to February 8, 2011. He served as an Executive Vice President of Wachovia Preferred Funding Corp. since February 23, 2011. He served as the Head of Commercial Banking Real Estate & Specialized Financial Services at Wells Fargo & Company. He served as the Head of Specialized Financial Services for Wells Fargo & Company. He served as an Executive Vice President of Wholesale Banking with Wells Fargo Bank, National Association, from August 2003 to September 2010. Mr. Sloan joined Wells Fargo in 1987. Mr. Sloan has been a Director of Wells Fargo & Company since October 12, 2016. He served as an Independent Director of California Resources Corporation since December 1, 2014 until February 28, 2017. Mr. Sloan serves on the Board of Overseers of the Huntington Library and is a member of the University of Michigan's Ross School of Business Advisory Board. He is a trustee of Ohio Wesleyan University and the City of Hope. Mr. Sloan holds a B.A. in Economics and History and an M.B.A. in Finance and Accounting from the University of Michigan.
Average tenure and age of the Wells Fargo management team in years:
Average tenure and age of the Wells Fargo board of directors in years:
Wells Fargo & Company, a diversified financial services company, provides retail, commercial, and corporate banking services to individuals, businesses, and institutions. Its Community Banking segment offers checking, savings, market rate, and individual retirement accounts, as well as time deposits and remittances; and lines of credit, automobile floor plan lines, equity lines and loans, equipment and transportation loans, education and residential mortgage loans, and debit and credit cards. This segment also provides equipment leases, real estate and other commercial financing, small business administration financing, venture capital financing, cash management, payroll services, retirement plans, merchant payment processing, and private label financing solutions, as well as purchases retail installment contracts. Its Wholesale Banking segment offers commercial loans and lines of credit, letters of credit, asset-based lending, equipment leasing, international trade facilities, trade financing, collection, foreign exchange, treasury management, institutional fixed-income sales, commodity and equity risk management, insurance, corporate trust fiduciary and agency, and investment banking services, as well as online/electronic products. This segment also provides construction, and land acquisition and development loans; secured and unsecured lines of credit; interim financing arrangements; rehabilitation loans; affordable housing loans and letters of credit; loans for securitization; and real estate and mortgage brokerage services. The company’s Wealth and Investment Management segment offers financial planning, private banking, credit, and investment management and fiduciary services, as well as retirement and trust services. It serves clients through approximately 8,600 locations and 13,000 ATMs; online and mobile banking; and offices in 42 countries. Wells Fargo & Company was founded in 1852 and is headquartered in San Francisco, California.
|Name:||Wells Fargo & Company|
Wells Fargo & Company
420 Montgomery Street,
|Exchange Symbol||Ticker Symbol||Security||Exchange||Country||Currency||Listed on|
|NYSE||WFC||Common Stock||New York Stock Exchange||US||USD||02. Jan 1968|
|DB||NWT||Common Stock||Deutsche Boerse AG||DE||EUR||02. Jan 1968|
|XTRA||NWT||Common Stock||XETRA Trading Platform||DE||EUR||02. Jan 1968|
|SWX||WFC||Common Stock||SIX Swiss Exchange||CH||CHF||02. Jan 1968|
|SNSE||WFC||Common Stock||Santiago Stock Exchange||CL||USD||02. Jan 1968|
|BMV||WFC *||Common Stock||Bolsa Mexicana de Valores||MX||MXN||02. Jan 1968|
|NYSE||WFC.PRL||PERP PFD CNV A||New York Stock Exchange||US||USD||15. Apr 2008|
|NYSE||WFC.PRJ||DEP SHS SER J||New York Stock Exchange||US||USD||20. Dec 2007|
|NYSE||WFC.PRN||DEP SHS REPSTG 1||New York Stock Exchange||US||USD||13. Aug 2012|
|NYSE||WFC.PRO||DEP1/1000PF CL A||New York Stock Exchange||US||USD||15. Nov 2012|
|NYSE||WFC.PRP||DEP1/1000PF CL A||New York Stock Exchange||US||USD||19. Mar 2013|
|NYSE||WFC.PRQ||DEP SHS 1/1000 A||New York Stock Exchange||US||USD||16. Jul 2013|
|NYSE||WFC.PRR||DEP 1/1000 PFD A||New York Stock Exchange||US||USD||13. Dec 2013|
|NYSE||WFC.PRT||DEP SHS 1/1000 T||New York Stock Exchange||US||USD||17. Jul 2014|
|NYSE||WFC.PRV||DEP PFD V 1/1000||New York Stock Exchange||US||USD||10. Sep 2015|
|NYSE||WFC.PRW||PFD SER W CL A||New York Stock Exchange||US||USD||21. Jan 2016|
|NYSE||WFC.PRX||PFD SER X CL A||New York Stock Exchange||US||USD||10. Jun 2016|
|NYSE||WFC.PRY||NON CUM PFD Y||New York Stock Exchange||US||USD||18. Apr 2017|
|BOVESPA||WFCO34||BDR EACH REPR 1 COM SH||Bolsa de Valores de Sao Paulo||BR||BRL||03. Jan 2012|
|BASE||WFC||CEDEAR EACH 5 REP 1 COM USD1.666666||Buenos Aires Stock Exchange||AR||ARS||26. Jul 2001|
|DB||NWT2||7.98%-FR PERP PRF CL 'A' SRS K USD1000||Deutsche Boerse AG||DE||USD||08. Jan 2009|