Wells Fargo Q1 preview: Where next for WFC stock?

When will Wells Fargo release Q1 2022 earnings?

Wells Fargo will publish first quarter earnings before US markets open on Thursday April 14.

That will come the day after JPMorgan kicks things off on Wednesday, and will be on the same day that other major banks Morgan Stanley, Goldman Sachs, Citigroup and US Bancorp will release first quarter earnings.

Wells Fargo Q1 2022 earnings preview

While the entire banking industry has come under pressure since the start of the year, Wells Fargo has significantly outperformed its peers after suffering a mild 2.8% decline compared to JPMorgan, Goldman Sachs, Morgan Stanley and Citigroup – all of which have seen their share prices plunge between 16% to 20% since the beginning of 2022. That is all the more impressive considering it was also the best performer in 2021, when it booked a 59% gain in value that far surpassed the performance delivered by its rivals that ranged from a 2% decline for Citigroup to a 45% rise for Goldman Sachs.

Wells Fargo is treated differently by markets to many other US banks. Firstly, the company has a more traditional style of banking concentrated on borrowing and lending means it has less exposure to investment banking and trading than its rivals. Secondly, the bank is much more focused on domestic operations in the US compared to some of its rivals that have businesses sprawled around the world. Thirdly, Wells Fargo has a unique problem that spans way back to 2018, when the Federal Reserve imposed an asset cap on the company following a string of scandals and failures across the business, from overcharging consumers to having millions of fake accounts on its books. This has prevented the bank from growing its balance sheet over the $1.95 trillion it had back in 2017, which in turn has limited its ability to lend, invest and ultimately grow.

The chair of the US Fed, Jerome Powell, suggested in September last year that the asset cap would remain in place for some time as he said the bank had some way to go before it satisfies the central bank it has fixed a slew of problems. That has weighed on hopes that 2022 could be the year the cap is removed. The longer it goes on, the longer Wells Fargo’s growth will be restricted and the more damaging it will prove to the bank’s reputation.

Wells Fargo’s focus on lending and its consumer and corporate businesses means it is poised to be among the biggest beneficiaries of higher interest rates that are pencilled in for this year, partly explaining why the bank has not suffered the same dramatic falls as its rivals this year.

The bank has also been faring much better when it comes to costs as the entire industry struggles to keep a lid on expenses, with non-interest expenses falling 11% year-on-year in the fourth quarter to $13.2 billion after cutting personnel costs, which is a key driver of higher costs at other banks that had to pay out large sums in compensation to staff following a bumper year for their investment banking arms. It also shut a number of branches and downsized its office space. Non-interest expenses are set to remain broadly flat in first quarter at $13.2 billion, but that will still be some 5.9% lower than the year before. More jobs are set to be cut in 2022, with up to another 5% of its workforce set to be let go. The hope is that Wells Fargo can continue to deliver on costs so that it can maximise the rewards available when interest rates rise this year. Keeping up the momentum in this area would be well-received by markets this week.

Meanwhile, investors will be paying attention on how loan demand is faring, as well as further unwinding of provisions that had been set aside for bad loans during the pandemic, in order to gauge how confident Wells Fargo is feeling about the outlook.

Wall Street forecasts Wells Fargo will see revenue decline 1.6% to $17.77 billion in the first quarter from the $18.06 billion delivered the year before, while diluted EPS is expected to drop 22.7% to $0.81 from $1.05.

Where next for WFC stock?

Wells Fargo shares rallied to a four-year high of $60 in February before starting to come under pressure, resulting in the stock sinking to a four-month low of $45.77 in the first week of March. Today, they trade closer to $49.

Notably, Wells Fargo shares remained significantly above the 200-day sma for the 16-months until early March, but the stock has struggled to deliver a sustained move above here and the moving average, which currently sits at $49.55, is now acting as the first key upside target that needs to be recaptured to install confidence of a move higher. If cleared, it can then target the 100-day and 50-day moving averages that are converging around the $52 mark. Beyond there, it can target the four-year high of $60 seen in February.

On the downside, the latest leg of the downtrend hit $47.70 before the stock started to find higher ground this week and this should be treated as the initial floor for the stock going forward. That will open the door to the four-month low of $45.77 if it fails to hold. A move below here would be more significant as it opens the door to sub-$44, which is a level last seen in September.

The RSI remains in bearish territory and average volumes over the last five days has dipped compared to the 10, 20, 30 and 100-day averages – suggesting the stock could continue to drift in the current channel before deciding which direction to head in next.

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