Company Overview

Zacks Rank #1 Wells Fargo & Company (WFC) is one of the largest financial services companies in the United States, with nearly $2 trillion in assets as of April 2024. The San Fransisco-based Wells Fargo specializes in banking, insurance, trust and investments, mortgage banking, investment banking, retail banking, brokerage services, and consumer and commercial finance through over 4,000 retail bank branches. Wells Fargo has an extensive automated telling machines (ATMs) network, coupled with its website and other distribution channels across North America and the globe.

Positive EPS Surprise History

The banking sector has been uncertain, to say the least. A little more than a year ago Silicon Valley Bank (SVB) completely collapsed amidst soaring interest rates and a downturn in the tech sector. The collapse of SVB sparked a banking crisis, leading to collapses in other banks, such as First Citizens Bank, the 30th-largest bank in the U.S. in terms of assets at the time of its collapse.

However, investors looking at Wells Fargo’s EPS surprise history in a vacuum would be hard-pressed to notice any banking turmoil. Over the past 15 quarters, WFC has delivered EPS that eclipsed Zacks Consensus Estimates in all but one quarter.

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Strong Balance Sheet

WFC’s cash and cash equivalents are reaching new heights this year.

1. The company is growing its deposit base recently as retail clients move away from smaller, more risk prone regional banks, back to more traditional banking juggernauts like WFC.

2. WFC has been prudent in its expense management initiatives to support its financials.

3. Wells has a strong liquidity position, with a liquidity coverage ratio of 126% as of the first-quarter 2024, which is well above the regulatory minimum of 100%.

Relative Strength & Base Breakout

Despite turmoil in the financial sector, WFC is dramatically outperforming the S&P 500 Index over the past year, gaining 53.6% compared to the S&P’s 25.5%. As I always like to teach, strength begets strength on Wall Street.

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WFC shares are breaking out of a two-year-long base structure on the weekly timeframe. As the old Wall Street adage goes, “The longer the base, the higher in space.” If the saying is true, WFC shares have a lot of meat left on the bone.

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Bottom Line

Despite the turmoil in the financial sector, Wells Fargo has been a rock. The company’s stability, robust balance sheet, and relative strength foreshadow an attractive investment over the next 6-12 months.

— Andrew Rocco

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Source: Zacks