Wells Fargo on Friday morning reported a mixed first quarter with misses across key revenue lines, offset by lower expenses and better provisions. While the economic outlook remains cloudy due to tariffs and trade wars, we’re willing to look through these results because of a key catalyst on the horizon. Total revenue for the three months ended March 31 fell 3.4% year over year to $20.15 billion — missing analysts’ expectations of $20.75 billion, according to market data provider LSEG. Earnings per share of $1.39 per share exceeded Wall Street’s consensus estimate of $1.24 per share, LSEG data showed. On an adjusted basis, the bank earnings $1.33 per share. This excludes a 6-cent per share gain on a previously announced sale of its non-agency third-party servicing segment. WFC YTD mountain Wells Fargo YTD Shares were down roughly 1% under $63 each in late afternoon trading in what has been a volatile day in the market. The stock has dropped roughly 10% year to date. It’s off 22% from its record-high close of $81.40 on Feb. 6. Bottom line Wells Fargo may be off to a slower start to the year than we expected, but we continue to appreciate the changes the bank has made under Charlie Scharf who became CEO in 2019. As Piper Sandler put it earlier this week when upgrading Wells Fargo to an overweight buy rating, the bank is “clearly making the transition from defense to offense.” The analysts cited as evidence Wells Fargo’s investment banking gains, push into credit cards, improvement in its auto business, and progress in fee-generating businesses. Or as we’ve put it before, Scharf has reduced Wells Fargo’s bloated cost structure, improved risk and controls, invested in technology, and diversified revenue with more fee-based streams to reduce the bank’s reliance on net interest income (NII). These changes have required a lot of heavy lifting, which is why we are hesitant to judge Wells Fargo on a quarter-to-quarter basis. Our focus is on the bigger picture. While making tangible progress on its turnaround, Wells Fargo and all the big banks will struggle in an economic downturn. During the post-earnings conference call, Scharf had this to say about the impact of the current trade wars on consumer sentiment: “People are certainly, taking stock of what it means, figuring out where to sit and wait and where to continue to move forward.” “I think there is still a hope that the positives of regulation, positives of tax reform, the long-term positives of changes in trade can put us in a position to feel better about the future and a growing economy,” he continued. “But, people are cautious, So I just kind of put it, put it in the wait and see category, cautious in the shorter term, but, probably still bullish for the longer term.” Why we own it We bought Wells Fargo as a turnaround story under CEO Charlie Scharf. He’s been making progress cleaning up the bank’s act and fixing its previously bloated cost structure after a series of misdeeds before his…
Read More: We trimmed our Wells Fargo price target after mixed Q1 earnings.