Wells Fargo Shares Fall Despite Q2 Earnings Beat: 'Guidance Was Softer Than Expected — A Valid Concern'

Shares of Wells Fargo & Co WFC recovered slightly in early trading on Monday, after tanking on Friday, following the second-quarter results.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the release.

• Goldman Sachs analyst Richard Ramsden maintained a Buy rating, while reducing the price target from $71 to $64.
• RBC Capital Markets analyst Gerard Cassidy reiterated a Sector Perform rating and price target of $61.
• Piper Sandler analyst Scott Siefers reaffirmed a Neutral rating and price target of $61.
• Oppenheimer analyst Chris Kotowski maintained a Perform rating on the stock.

Check out other analyst stock ratings.

Goldman Sachs: While Wells Fargo reported second-quarter earnings of $1.33 per share, beating consensus of $1.25 per share, its core earnings (excluding one-time items) came in at $1.42 per share, in-line with expectations, Ramsden said in a note. The mix deteriorated in the quarter, with more low-margin fee revenue and less high-margin net interest income, he added.

"The lowered NII guide was attributed to a large repricing of wealth management sweep deposits that the company expects to drive a $350mn headwind to NII in 2024, and we believe that this was largely unanticipated by the Street," the analyst further wrote.

RBC Capital Markets: "Performance relative to our estimate was driven by higher fee revenues, partially offset by higher expenses, a larger-than-expected provision and lower-than-expected net interest income," Cassidy wrote. He added, however, that Wells Fargo's net interest income of $11.9 billion marked a decline from $12.2 billion in the prior quarter and $13.2 billion in the year-ago quarter.

The 2024 guidance was "weaker than earlier guidance," the analyst stated. He lowered the 2024 and 2025 earnings estimates from $5.12 per share to $5.09 per share and from $5.53 per share to $5.45 per share, respectively.

Piper Sandler: Wells Fargo's shares closing around 6% lower seems "a little overdone" and are likely to recover as the market appreciates that the "underlying guidance revisions are more benign than they appeared at first blush," Siefers said. He added, however, that the company's NII guidance was softer than expected, which is a valid concern.

"While the FY24E guide technically got $1.4B worse, a good chunk of the delta is simply due to higher revenue-related compensation given strong equity markets performance," the analyst wrote, while adding, "To us, this is a good thing."

Oppenheimer: The actual net interest income of $12.0 billion matched the estimate, while both core revenues and expenses were ahead, Kotowski said.

"WFC’s refined NII guide of down 8–9% Y/Y still falls within the down 7–9% range provided at the onset of this year when viewed in isolation," the analyst wrote. He added, however, that in view of the expected interest rate cuts later in the year and Wells Fargo's more asset sensitive exposure, expectations were for a positive revision in guidance.

WFC Price Action: Shares of Wells Fargo had risen by 2.03% to $57.69 at the time of publication on Monday.

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