In mid-August 2019, things looked bleak for global banking giant Wells Fargo (NYSE:WFC) and WFC stock was on the ropes.
U.S.-China trade tensions were escalating. The global economy was growing at its slowest rate since The Recession. The long-end of the yield curve was plunging to all-time low levels. Most parts of the yield curve were inverted. Manufacturing activity globally was slowing. Consumer confidence was wavering. And, Wells Fargo was still struggling with reputation-related headwinds.
Net net, nothing was going right for Wells Fargo. That’s why WFC stock found itself at a five-year low price tag of $43.
Since then, everything has changed.
U.S.-China trade tensions have significantly eased. The global economy has shown signs of rebounding from the 2019 slowdown. Yields have moved way higher. The yield curve has entirely un-inverted. Manufacturing activity has picked up steam. Consumer confidence has roared back to all-time highs. And, Wells Fargo reported strong third-quarter numbers which underscored that this company’s reputation-related headwinds may be phasing out.
In other words, over the past few months, Wells Fargo got its groove back, and WFC stock has rallied an impressive 25% to its highest levels in a year.
The good news? Wells Fargo will maintain this groove for the foreseeable future, and so long as they do, WFC stock will keep grinding higher. The next stop? $60, in about twelve months.
Wells Fargo Has Its Groove Back
On the externals front, broad banking sector fundamentals have improved dramatically. In a nutshell, the global economy has gone from consistently slowing, to rebounding, as easing U.S.-China trade tensions have breathed confidence and life back into the global industrial economy at the same time that supportive fiscal policy has helped provide firepower for a rebound.
As goes the economy, so goes the banking sector. Thus, this pick-up in global economic activity has been a big plus for all bank stocks.
More than that, U.S. interest rates have moved significantly higher as the economic outlook has improved. They will likely keep moving higher since the Fed seems to be done with this rate cut cycle.
The yield curve, which was partially inverted for several months, is now fully un-inverted. Global labor markets continue to be characterized by record-low unemployment levels and strong wage gains. Consumer confidence is at all-time high levels.
Meanwhile, on the internals front, Wells Fargo appears to be in full rebound mode. For several quarters, most of Wells Fargo’s businesses were retreating because of reputation-related issues, but last quarter most important metrics trended higher.
Checking customers were up. Credit card and debit card usage was up. Loan volume was up. Deposits were up. Customer satisfaction scores were up. All of this “up” broadly implies that Wells Fargo has moved past its reputation headwinds and is ready to move higher with the whole banking sector.
Wells Fargo Stock Will March Towards $60
Given the favorable fundamental backdrop, there is visible runway here for WFC stock to march towards $60 over the next twelve months.
Most of Wells Fargo’s businesses grew last quarter when the economy wasn’t doing so well. Over the next few quarters, the economy should do a lot better. As it does, Well Fargo’s growth rates will improve. Assuming so, then Wells Fargo should grow revenues at a mild pace over the next few quarters.
Profits should rise by more, boosted by super-charged net interest income growth, which will move higher as interest rates move higher.
Broadly, Wells Fargo projects as a mid-single-digit profit grower. That growth trajectory makes $5 in earnings per share seem doable by fiscal 2021. Based on a financial sector-average 12-times forward earnings multiple, that equates to a 2020 price target for Wells Fargo stock of $60.
Bottom Line on WFC Stock
Wells Fargo stock went nowhere for a long time. Now, it’s going somewhere, and with good reason — for the first time in several years, Wells Fargo has its groove back.
So long as Wells Fargo maintains this groove, WFC stock will keep grinding higher.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.