Wells Fargo Hits 52-Week High: Is WFC Stock Worth Considering?

Core Viewpoint - Wells Fargo & Company (WFC) shares have reached a 52-week high, closing at $74.34, with a 31.7% increase over the past three months, outperforming industry peers like Bank of America and Citigroup [1] Factors Driving WFC Stock - The Federal Reserve's recent interest rate cuts are expected to enhance net interest income (NII) and net interest margin (NIM), supporting top-line growth [4][6] - WFC's NII has shown a compound annual growth rate (CAGR) of 9.4% over the last three years, although it declined in the first nine months of 2024 due to high funding costs [7] - The net interest margin expanded to 3.06% in 2023 from 2.63% in 2022, but contracted in the first nine months of 2024 [7] - The company has implemented cost-cutting measures since Q3 2020, which have resulted in a negative CAGR of 1.1% in non-interest expenses over the last four years [8][9] - Management projects non-interest expenses to be$ 54 billion in 2024, down from $55.6 billion in 2023 [11] Strong Financial Position - Wells Fargo has a solid balance sheet with long-term debt of$ 182.1 billion and short-term borrowings of $111.9 billion as of September 30, 2024 [13] - The liquidity coverage ratio stands at 127%, exceeding the regulatory minimum of 100% [13] - The company maintains strong capital ratios, with a Tier 1 common equity ratio of 11.3% and a Total capital ratio of 15.5% as of September 30, 2024 [15] - In July 2024, WFC announced a 14% dividend hike to 40 cents per share, with a five-year annualized dividend growth of 10.84% [16] Concerns for Wells Fargo - An ongoing asset cap limits WFC's growth potential, with loan balances expected to remain subdued until compliance with regulatory demands is achieved [19][20] - Mortgage banking income has seen a negative CAGR of 25.7% over the last four years, with expectations of muted performance due to high mortgage rates [21][23] Analyst Estimates - Analysts have shown optimism regarding WFC's growth prospects, with upward revisions in earnings estimates for 2024 and 2025 [25] - Despite a projected decline of 2.95% in earnings for 2024, a rebound of 3.52% is expected in 2025 [26]