Can Wells Fargo & Co. (WFC) Win Back Its Credibility?

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Wells Fargo & Co. (NYSE:WFC) is set to report fourth-quarter fiscal 2016 earnings results before the opening bell Friday.

Can Wells Fargo & Co. (WFC) Win Back Its Credibility?

And while the surprise victory by President-elect Donald Trump has made bank stocks great again, sending the SPDR S&P Bank (ETF) (NYSEARCA:KBE) soaring almost 30% in the past three months, Wells Fargo stock has lagged the gains enjoyed by its peers. Will this soon change?

Earning Back Its Reputation

Wells Fargo stock gained just 6% last year, trailing Bank of America Corporation (NYSE:BAC), which posted more than 36% returns. Once considered the “Cleanest shirt in the dirty hamper” amid the financial crisis of 2008, Wells Fargo — driven by the scandal of fake accounts, for which it settled with a fine of $185 million — must go pretty far this year to earn back that reputation. And it must do so with new CEO Tim Sloan after longtime chief John Stumpf resigned last October.

The good new is, on Wall Street, an earnings beat and raised guidance often lend tons of good will and restored credibility. Can Wells Fargo deliver?

For the quarter that ended December, analysts expect the San Francisco-based firm to report earnings per share of $1 on revenue of the $22.45 billion. On a year-over-year basis, this would translate to a 3% decline in EPS, while revenue would rise about 4%.

For the full year, ending December, earnings are projected to decline 2.89% to $4.03 per share, while revenue of $89.12 billion would rise 3.6% year over year.

New Leadership, New Direction

How Wells Fargo guides for the fiscal 2017 will give analysts a hint of how confident the bank is in terms of getting back to earnings growth. What’s more, in the wake of the bank and credit card fraud scandal, Wells Fargo announced changes to how it compensates branch workers.

Reuters noted that Wells Fargo’s new payment plan will reward workers based on their level of customer service, not the amount of accounts they open or sales goals they’ve reached.

“This new plan is one step in our efforts to restore trust with team members and customers, and we will continue to make additional changes,” Mary Eshet, Wells Fargo spokeswoman, told Reuters in an e-mail.

Combined with higher interest rates and the prospect of lower banking regulations under Donald Trump’s administration, who promised to scale back Dodd-Frank, Wells Fargo should have some tailwinds to exceed expectations that have recently been lowered amid its account scandal.

Bottom Line for WFC Stock

Wells Fargo shares closed Tuesday at $54.62. With lowered headline risks and an improved regulatory environment, Wells Fargo has several ways to revive its business, which can send WFC stock higher.

At the same time, with the emergence of Bank of America, Citigroup Inc (NYSE:C) and the consistency of JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo now has less wiggle room for disappointment. Investors have many more — and better — options in which two invest.

With the shares trading at around $54 and priced at just 13 times fiscal 2017 estimates of $4.16 per share, WFC stock should reach $60 to $65 in 2017 on the assumption that EPS growth returns.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/01/wells-fargo-stock-wfc-earnings-preview/.

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