Should I buy Wells Fargo shares after better than expected second-quarter results?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Jul 16, 2021
  • Wells Fargo reported better than expected second-quarter results
  • CEO Charles Scharf said that the outlook for the rest of the year is promising
  • The board of directors should increase the quarterly dividend to $0.20 per share

Wells Fargo & Company (NYSE: WFC) shares have weakened from their recent highs above $48, and the current price stands around $44. Wells Fargo reported better than expected second-quarter results this week, and CEO Charles Scharf said that the outlook for the rest of the year is promising

Fundamental analysis: CEO Charles Scharf said that the outlook for the rest of the year is promising

Wells Fargo reported better than expected second-quarter results this Wednesday, and according to the technical analysis, shares of this bank remain in a buy zone. Total revenue has increased by 10.9% Y/Y to $20.27 billion, while GAAP EPS for the same period was $1.38 (beats by $0.40).

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Total revenue has increased above the expectations (+2.58 billion), and the board of directors expects to increase the dividend to $0.20 per share in the third quarter. Wells Fargo continues to respond to the needs of its clients in the best possible way and return capital to its shareholders.

“Increasing our dividend is a priority, and our plan contemplates continued increases as we grow earnings capacity. Additionally, our capital plan included approximately $18 billion of gross common share repurchases starting in the third quarter and concluding in the second quarter of next year,” said Charles Scharf, President and Chief Executive Officer of Wells Fargo.

The bank reported a net income of $6 billion, compared with $4.74 billion in the first quarter of the 2021 year, while CEO Charles Scharf said that the outlook for the rest of the year is promising.

During the second quarter, Wells Fargo has sizable gains from equity securities and deposit-related fees despite weakness in supply chains and low-interest rates. It is also important to mention that consumer credit card spending increased by 13% in the second quarter compared to the same period in 2019.

Travel-related spending remains the only segment that has not fully rebounded to 2019 levels, but it was up significantly from 2020. Wells Fargo has proven its stability during the Covid-19 pandemic, and it will probably further improve its position in the upcoming quarters even though FED’s ultra-loose monetary policy will continue to pressure the margins of this bank.

Kenneth Leon, an analyst from the research company CFRA, assigned a buy rating on Wells Fargo as he expects that WFC can realize higher revenue and cost efficiency in the next two years. The U.S. Federal Reserve is forecasting two interest-rate hikes before the end of 2023, which will help net interest income.

Technical analysis: Wells Fargo shares remain in a buy zone

Data source: tradingview.com

Wells Fargo shares have been moving in an uptrend last several months, and for now, the positive trend remains intact. If the price jumps above $46, the next target could be around $48, but if the price falls below the $40 support level, it would be a firm “sell” signal.

Summary

Wells Fargo reported better than expected second-quarter results this Wednesday, and an analyst from the research company CFRA assigned a buy rating on Wells Fargo as he expects that WFC can realize higher revenue and cost efficiency in the next two years. According to the technical analysis, shares of this bank remain in a buy zone, and if the price jumps above $46, the next target could be around $48.

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