Shares of Wells Fargo & Co (NYSE:WFC), the third-largest U.S. bank by assets, are rising almost 3% in Friday’s early trading session even though the embattled money center bank reported fourth-quarter fiscal 2016 earnings results that missed Wall Street estimates. This suggests that WFC stock investors are more focused on the plans new CEO Tim Sloan plans to implement aimed at restoring the bank’s credibility.
For the quarter that ended December, the San Francisco-based firm reported a net income of $4.87 billion, or 96 cents per share. Not only does that mark a 6.4% decline year over year — from $5.20 billion, or $1 per share, a year earlier — it missed Wall Street’s estimates by 4 cents.
Notably, this mark’s the fifth straight drop in quarterly profit for WFC stock, as the company attempts to work its way from the bogus-accounts scandal that caused longtime CEO John Stumpf to resign last October.
So why is WFC stock climbing?
Investors realized that on an adjusted basis, when taking out one-time gains and costs, earnings per share came to $1.03 per share, beating the $1 per share analysts expected. But because of the scandal, Wells Fargo’s non-interest expenses rose about 5% year over year to $13.2 billion, driven by higher legal costs. Fourth-quarter revenue came to $21.6 billion. Though it was slightly unchanged from last year, it also missed analysts’ average estimate of $22.45 billion.
“While we have more work to do, I am proud of the effort of our entire team to make things right for our customers and team members and to continue building a better Wells Fargo for the future,” CEO Tim Sloan said in a statement.
The bank has tons of work to do to get its customers back. For November alone, new checking account openings plunged more than 40% year-over-year. Likewise, new credit card applications declined 45% during the same period, while in-house customer loyalty scores also fell.
Earlier this week, Wells Fargo unveiled new compensation plan for bank branch employees that would eliminate incentives for opening accounts or meeting sales goals — the cross-sale model that became toxic for the bank and the catalyst for the accounts scandal.
Bottom Line for WFC Stock
All told, while Wells Fargo’s results diverged from the dominant numbers just released by JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC), it wasn’t the disaster Wall Street was bracing for.
With the shares trading at around $56 and still priced attractively at just 13 times fiscal 2017 estimates of $4.16 per share, Wells Fargo stock should be owned assuming it can benefit from tailwinds of higher interest rates and looser regulations under Donald Trump’s administration.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
