Wells Fargo (WFC) has been on a tear across the past six months. The stock was below $25 in mid-October and is up nearly 60% since then.
The primary reasons for its strong gains are the rise in interest rates, the improving economic outlook, and a hot housing market.
Will WFC continue to move higher? Let’s take a closer look at this red-hot banking stock to get a sense of its direction in the weeks and months ahead.
WFC Background
WFC is one of the largest banks in the United States. This bank provides services for everyday people, corporations, and commercial clients. WFC is also one of the top residential mortgage providers in the United States. All in all, WFC has around $2 trillion in assets along with $1.4 trillion of deposits. In total, WFC’s ATM network and branches amount to more than 5,000 locations.
WFC has greatly benefited from the recent movement of investing dollars out of tech and growth stocks that were scorching hot across the prior six months. The pressing question is how long the return to value stocks will last. WFC’s unique merits also play a role in determining whether it continues to ascend, reverts course, or stagnates throughout the remainder of 2021.
WFC is currently trading at a forward P/E ratio of 13.68. This is a low forward P/E ratio even for a banking stock. The low forward P/E ratio makes WFC that much more attractive considering the stock is rapidly approaching its 52-week high. WFC's forward P/E ratio could easily climb into the teens, 20s, or higher in the months ahead if the shift back to value stocks continues.
WFC recently cut its dividend. Add in the fact that WFC's scandals will hover over the company similar to a black cloud for at least a couple more years and there is reason to think twice before investing your hard-earned dollars in this banking stock. However, enhanced oversight combined with improvements in the company's risk management might set the stage for WFC to move higher.
Still, there is some question as to whether we have seen the full extent of WFC's internal corruption. Another scandal may be revealed in the months ahead, leading to even more fines. As of April '21, WFC has already paid billions in fines for actively deceiving some of its customers.
The Analysts’ View of WFC
WFC has an average target price of $41.48. If the stock reaches this level, it will have increased by nearly 5%. The analysts' high target price for the stock is $65 while the lowest target price is $33.
Of the 26 analysts who have issued recommendations for the stock, five consider it a Strong Buy, 11 consider it a Buy, 10 consider it a Hold and none consider it a Sell or Strong Sell.
WFC POWR Ratings
WFC has a C POWR Ratings grade. The stock has a D grade in the Momentum component of the POWR Ratings along with C grades in the Growth and Value Components. Click here to learn more about how WFC fares in the Quality, Sentiment, and Stability components.
Of the 11 publicly traded companies in the Money Center Banks industry, WFC is ranked third. Click here to learn more about the stocks that comprise this segment. The Money Center Banks industry as a whole has a D POWR Ratings grade.
Buy, Sell or Hold?
I don't recommend initiating a new position in WFC at this time. The stock is rated a C by the POWR Ratings. While the stock has certainly posted impressive gains, it's been a beneficiary of economic conditions. Many of its peers have posted more impressive results and aren't burdened by regulatory issues.
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WFC shares were trading at $42.15 per share on Wednesday afternoon, up $2.36 (+5.93%). Year-to-date, WFC has gained 40.10%, versus a 10.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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