Here's How to Approach Wells Fargo Stock Now as Fed Keeps Rates Steady

Core Viewpoint - The Federal Reserve has decided to maintain interest rates, which poses challenges for Wells Fargo & Company (WFC) amid rising inflation and unemployment risks due to economic uncertainty stemming from Trump's tariff plan [1][2]. Wells Fargo & Fed Rates - The Federal Reserve lowered interest rates by 100 basis points last year but has kept them steady since then, impacting Wells Fargo's net interest income (NII) and net interest margin (NIM) negatively due to increased funding costs [3]. - With interest rates unchanged, WFC is likely to face prolonged elevated funding costs, and the lending environment is not expected to improve significantly in 2025 compared to 2024 [4]. Growth Expectations - Management anticipates a modest growth in NII for 2025, projecting an increase of 1-3% compared to 2024 [5]. Compliance and Risk Management - Under CEO Charlie Scharf, Wells Fargo is enhancing its compliance framework, with regulatory approval for improved risk management techniques [6]. - The bank has successfully closed six regulatory actions this year and twelve since 2019, indicating a focus on strengthening risk management and compliance [7]. Asset Cap and Growth Initiatives - Wells Fargo operates under an asset cap of $1.95 trillion, imposed in 2018, which limits its growth potential and loan growth [8][9]. - The bank is pursuing cost efficiency through various initiatives, including organizational restructuring, branch closures, and headcount reductions [9][10]. - WFC is investing in branch upgrades and technology, with plans to update all branches in the next five years, expecting$2.4 billion in gross expense reductions in 2025 [11]. Capital Distribution - As of March 31, 2025, Wells Fargo's long-term debt was $173.6 billion, and short-term borrowings were$139.8 billion, with a liquidity coverage ratio of 125% [12]. - The company announced a 14% dividend hike in July 2024, raising it to 40 cents per share, and has increased its dividend six times in the past five years, currently yielding 2.18% [13]. Price Performance & Valuation - Over the past month, WFC shares increased by 10.3%, outperforming the industry average of 8.2% [16]. - Wells Fargo is trading at a forward P/E multiple of 11.96X, below the industry average of 12.79X, indicating it may be undervalued relative to peers [19]. Earnings and Sales Estimates - Earnings estimates for the upcoming quarters show a year-over-year growth expectation of 6.77% for the current quarter and 13.56% for the next year [23]. - Sales estimates indicate a year-over-year growth of 1.25% for the current quarter and 4.95% for the next year [25]. Investment Outlook - Given the favorable factors, including compliance improvements and cost efficiency initiatives, WFC's earnings and revenues are expected to grow, making the stock worth holding for long-term returns [21][27].