Is this the year Wells Fargo (WFC), which has been marred by various scandals, takes a bigger leap forward and leave behind lingering legacy issues — many of which have been a stain on the top line?
The answer to this question may come on Tuesday when the San Francisco-based bank reports fourth quarter fiscal 2018 earnings results before the opening bell. Regarding all of the already-disclosed issues the bank has dealt with over the past three years, Wells recently came to a settlement with the Attorneys General of all 50 states (as well as the District of Columbia). This is much-needed good news for Wells, assuming the news cycle runs out of new negative headlines.
As for its operations, there are signs of improvement. In the third quarter, Wells Fargo earned back some trust with the Street, showing growth not only in customer accounts but also in increased lending activity. CEO Tim Sloan, on the conference call with analysts, attributed the improved results to "the transformational changes” the bank has made. The bank is working on cutting costs.
Citing changing consumer behavior, including a preference for digital self-service options, Wells Fargo in September announced plans to cut its workforce by 5% over the next three years. But given that banks will now operate in an environment where interest rates are not expected to rise as frequently, Wall Street insists on knowing what Wells Fargo’s “new normal” will look like in terms of its immediate future — particularly in terms of profitability.
Meanwhile, from a valuation perspective, WFC stock looks enticing after falling 13.5% in six months. Combined with its above average dividend, share buyback program, the stock is one of several to keep an eye on in the banking sector. But, of course, its earnings results on Tuesday, along with guidance for 2019, can change that opinion.
For the three months that ended December, analysts expect Wells Faro to earn $1.19 per share on revenue of $21.75 billion. This compares to the year-ago quarter when earnings came to 97 cents per share on revenue of $22.05 billion. For the full year, earnings are projected to rise 10% year over year to $4.27 per share, while full-year revenue of $86.62 billion would decline 2% year over year.
The top- and bottom-line numbers are not expected to be strong. But investors will want to see continued improvement from what the bank delivered in Q3. John Shrewsberry, the CFO, last quarter cited the bank’s growth in areas such as primary consumer checking, increased debit and credit card usage as well as higher loan originations.
These trends suggests customers are coming back to Wells Fargo for products such as auto and small business loans as well as home equity and personal lines of credit. How Wells Fargo guides for all of fiscal 2019 will give analysts a hint of how confident the bank is in terms of getting back to revenue growth. All told, Wells Fargo’s operational improvements suggest the bank is on firmer footing, making Wells Fargo stock — which pays a dividend yield of 3.78% — a solid bet for 2019.