As you might know, Wells Fargo & Company (NYSE:WFC) last week released its latest yearly, and things did not turn out so great for shareholders. It wasn’t a great result overall – while revenue fell marginally short of analyst estimates at US$82b, statutory earnings missed forecasts by 11%, coming in at just US$4.05 per share. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. We thought readers would find it interesting to see analysts’ latest (statutory) post-earnings forecasts for next year.
Following the recent earnings report, the consensus from16 analysts covering Wells Fargo expects revenues of US$79.1b in 2020, implying a noticeable 4.0% decline in sales compared to the last 12 months. Statutory per-share earnings are expected to be US$4.07, roughly flat on the last 12 months. Before this earnings report, analysts had been forecasting revenues of US$80.2b and earnings per share (EPS) of US$4.34 in 2020. Analysts seem to have become a little more negative on the business after the latest results, given the small dip in their earnings per share forecasts for next year.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$51.77, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. There’s another way to think about price targets though, and that’s to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Wells Fargo at US$60.00 per share, while the most bearish prices it at US$42.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Wells Fargo shareholders.
Further, we can compare these estimates to past performance, and see how Wells Fargo forecasts compare to the wider market’s forecast performance. We would highlight that sales are expected to reverse, with the forecast 4.0% revenue decline a notable change from historical growth of 0.1% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 4.8% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – analysts also expect Wells Fargo to grow slower than the wider market.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Wells Fargo. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn’t be too quick to come to a conclusion on Wells Fargo. Long-term earnings power is much more important than next year’s profits. We have estimates – from multiple Wells Fargo analysts – going out to 2021, and you can see them free on our platform here.
We also provide an overview of the Wells Fargo Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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