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Wells Fargo

NYSE:WFC
Snowflake Description

Flawless balance sheet average dividend payer.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
WFC
NYSE
$270B
Market Cap
Diversified Banks
Company description

Wells Fargo & Company, a diversified financial services company, provides retail, commercial, and corporate banking services to individuals, businesses, and institutions. More info.


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3 Month History
WFC
Industry
5yr Volatility vs Market

Value

 Is Wells Fargo undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Wells Fargo to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

Dividends have been used for this discounted cash flow calculation, why is this?

  • The current share price of Wells Fargo is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Wells Fargo's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Wells Fargo's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Good value based on earnings compared to the Banks industry average.
  • Good value based on earnings compared to the overall market.
Price based on expected Growth
Does Wells Fargo's expected growth come at a high price?
  • Poor value based on expected growth next year.
Price based on value of assets
What value do investors place on Wells Fargo's assets?
  • Overvalued based on assets compared to the Banks industry average.
X
Value checks
We assess Wells Fargo's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Banks industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Banks industry average (and greater than 0)? (1 check)
  5. Wells Fargo has a total score of 2/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (5%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Dividend Discount Model)

The calculations below outline how an intrinsic value for Wells Fargo is arrived at by discounting future dividends to their present value. This approach is used for finance firms where free cash flow is difficult to estimate (e.g. Banks/ Insurance firms).

If the firm does not pay the majority of its earnings out as a dividend this method will often arrive at a value significantly lower than the share price.

See our documentation to learn about this calculation.



Value of the stock

Value = Expected dividends per share / (Discount Rate - Perpetual growth rate)
$19.86 = ($1.54 / (10.09% - 2.33%)

Value per share:
$19.86

Current discount (share price of $55.06): -177%



Estimate of Discount Rate

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 = 10.09% = 2.33% + (1.011 * 7.67%)



Estimate of Bottom Up Beta

The Levered is used in the case of financial firms, but it is not adjusted for financial leverage like with non-finance firms. Therefore the average levered beta from comparable firms is used as the bottom-up beta. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Average Levered Beta from peers = 1.011

Levered Beta used in calculation = 1.011



Assumptions
  1. The risk free rate of 2.33% is from the 10 year government bond rate in US.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Wells Fargo expected to perform in the next 1 to 3 years based on estimates from 12 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    18%
    Expected earnings growth over 3 years.
    Future Earnings growth analysis
    Is Wells Fargo expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are Wells Fargo's annual earnings growth expected to exceed 3.4% over the next 3 years?

    • After 1 year
    • After 3 years
    1 & 3 year estimated growth in earnings
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow data unavailable.
    • Profit
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • Wells Fargo is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.

    Improvement & Relative to industry
    • Expected to be above the Banks industry average.
    • An improvement in Wells Fargo's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess Wells Fargo's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    Wells Fargo has a total score of 2/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has Wells Fargo performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare Wells Fargo's growth in the last year to its industry (Banks).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • Wells Fargo's earnings growth has not matched the industry average in the past year.
    • Wells Fargo's 1 year earnings growth is negative.
    • Wells Fargo has improved earnings in the past 5 years.
    Profit History
    Wells Fargo's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Poor return on shareholders funds (ROE) last year.
    • Wells Fargo performed above the Banks industry average based on return on assets (ROA) last year.
    • Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
    X
    Past performance checks
    We assess Wells Fargo's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Banks industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    Wells Fargo has a total score of 3/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is Wells Fargo's financial position? (This company is analysed differently as a bank or financial institution)

    This company is a bank or financial institution.

    Fundamentally a bank's business is based upon borrowing and lending money, for this reason they typically have high levels of debt and we analyse them differently.
    Net Worth
        Balance sheet
        This treemap shows a more detailed breakdown of Wells Fargo's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
        Assets
        Liabilities and shares
        The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
            Historical Debt
            Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

            The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

            If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
                    BANK ANALYSIS

                    This company is a bank or financial institution, which is analysed accordingly below.

                    Below we check the amount of loans the bank has, how many of those are bad, and its ability to cover any bad loans.
                    • Acceptable proportion of non-loan assets held.
                    • Liabilities are made up of primarily low risk sources of funding.
                    • Loans are broadly funded by customer deposits.
                    • The banks level of assets compared to its equity is low (i.e. an appropriate level of borrowing to fund lending).
                    • High level of bad loan coverage.
                    • Acceptable level of bad loan write offs (less than 2%).
                    X
                    Financial health checks (Bank)
                    We assess Wells Fargo's financial health as a bank by checking for:
                    1. Leverage (Assets to Equity > 20x)? (1 check)
                    2. Coverage of bad loans (Bad Loan Coverage > 100%)? (1 check)
                    3. Proportion of lower risk deposits compared to total funding (Deposits to Liabilities < 50%)? (1 check)
                    4. Proportion of higher risk assets compared to total assets (Loans to Assets > 110%)? (1 check)
                    5. Total loans compared to deposit funding (Loans to Deposits > 125%)? (1 check)
                    6. Level of bad loans (Net Charge Off Ratio > 3%)? (1 check)
                    7. Wells Fargo has a total score of 6/6, see the detailed checks below.


                    Full details on the Health part of the Simply Wall St company analysis model.

                    Dividends

                     What is Wells Fargo's current dividend yield, its reliability and sustainability?

                    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
                    Annual Dividend Income
                    Dividend payments
                    2.77%
                    Current annual income from Wells Fargo dividends. Estimated to be 2.94% next year.
                    If you bought $2,000 of Wells Fargo shares you are expected to receive $55 in your first year as a dividend.
                    Dividend Amount
                    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
                    • Paying above low risk savings rate. (2.25%)
                    • Paying below the markets top dividend payers. (3.18%)
                    Historical dividend yield
                    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

                    We also check to see if the dividend has increased in the past 10 years.
                    • Dividends per share have been volatile in the past 10 (annual drop of over 10%).
                    • Dividends per share have increased over the past 10 years.
                    Current Payout to shareholders
                    What portion of Wells Fargo's earnings are paid to the shareholders as a dividend.
                    • Dividends paid are well covered by net profit (2.4x coverage).
                    Future Payout to shareholders
                    • Dividends after 3 years are expected to be well covered by net profit (2.7x coverage).
                    X
                    Income/ dividend checks
                    We assess Wells Fargo's dividend by checking for:
                    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
                    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
                    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
                    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
                    5. How sustainable is the dividend, can Wells Fargo afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
                    6. Wells Fargo has a total score of 4/6, see the detailed checks below.


                    Full details on the Dividends part of the Simply Wall St company analysis model.

                    Management

                     What is the CEO of Wells Fargo's salary, the management and board of directors tenure and is there insider trading?

                    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
                    CEO
                    Tim Sloan, image provided by Google.
                    Tim Sloan
                    COMPENSATION$13,014,714
                    AGE56
                    CEO Bio

                    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.

                    CEO Compensation
                    • CEO's compensation has been consistent with company performance over the past year.
                    • CEO's compensation appears reasonable.
                    Management Team Tenure

                    Average tenure of the Wells Fargo management team:

                    Management tenure
                    3.6 years
                    • The tenure for the Wells Fargo management team is about average.
                    Management Team

                    Tim Sloan

                    TITLE
                    Chief Executive Officer
                    COMPENSATION
                    $13,014,714
                    AGE
                    56

                    John Shrewsberry

                    TITLE
                    Chief Financial Officer and Senior Executive Vice President
                    COMPENSATION
                    $9,276,692
                    AGE
                    51

                    Avid Modjtabai

                    TITLE
                    Senior Executive Vice President of Payments
                    COMPENSATION
                    $9,290,048
                    AGE
                    55

                    Mike Loughlin

                    TITLE
                    Chief Risk Officer and Senior Executive Vice President
                    COMPENSATION
                    $5,306,630
                    AGE
                    61

                    David Carroll

                    TITLE
                    Executive Officer
                    COMPENSATION
                    $9,411,965
                    AGE
                    59

                    Titi Cole

                    TITLE
                    Head of Operations and Executive Vice President
                    Board of Directors Tenure

                    Average tenure of the Wells Fargo board of directors:

                    Board tenure
                    11.4 years
                    • The average tenure for the Wells Fargo board of directors is over 10 years, this suggests they are a seasoned and experienced board.
                    Board of Directors

                    Steve Sanger

                    TITLE
                    Non-Executive Chairman
                    COMPENSATION
                    $485,630
                    AGE
                    71

                    Tim Sloan

                    TITLE
                    Chief Executive Officer
                    COMPENSATION
                    $13,014,714
                    AGE
                    56

                    Betsy Duke

                    TITLE
                    Vice Chairman
                    COMPENSATION
                    $386,133
                    AGE
                    64

                    Henry Jordan

                    TITLE
                    Chairman of Wells Fargo Capital Finance and Chief Executive Officer of Wells Fargo Capital Finance
                    AGE
                    61

                    Cynthia Milligan

                    TITLE
                    Independent Director
                    COMPENSATION
                    $377,002
                    AGE
                    71

                    Rick Hernandez

                    TITLE
                    Independent Director
                    COMPENSATION
                    $421,002
                    AGE
                    61
                    Recent Insider Trading
                    • Wells Fargo insiders have sold more shares than they have bought in the past 3 months.
                    Who owns this company?
                    X
                    Management checks
                    We assess Wells Fargo's management by checking for:
                    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
                    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
                    3. Is the average tenure of the management team less than 2 years? (1 check)
                    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
                    5. Wells Fargo has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


                    Note: We use the top 6 management executives and board members in our calculations.

                    Note 2: Insider trading include any internal stakeholders and these transactions.

                    Full details on the Management part of the Simply Wall St company analysis model.

                    Company News

                    Company Info

                    Description

                    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.

                    Details
                    Name:Wells Fargo & Company
                    Ticker:WFC
                    Exchange:NYSE
                    Founded:1852
                    Market Cap:$269,559 million
                    Website:http://www.wellsfargo.com
                    Listings
                    Map

                    420 Montgomery Street, San Francisco, 94163, United States

                    Number of employees
                    Street

                    Current staff
                    Staff numbers
                    269,100
                    Wells Fargo employees.
                    Industry
                    Industry:Diversified Banks
                    Sector:Banks