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Analysts Have Been Trimming Their Wells Fargo & Company (NYSE:WFC) Price Target After Its Latest Report

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Simply Wall St
·4 min read
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It's shaping up to be a tough period for Wells Fargo & Company (NYSE:WFC), which a week ago released some disappointing second-quarter results that could have a notable impact on how the market views the stock. It was a pretty negative result overall, with revenues of US$18b missing analyst predictions by 2.5%. Worse, the business reported a statutory loss of US$0.66 per share, much larger than the analysts had forecast prior to the result. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

Check out our latest analysis for Wells Fargo

earnings-and-revenue-growth
earnings-and-revenue-growth

Taking into account the latest results, the current consensus from Wells Fargo's 18 analysts is for revenues of US$71.8b in 2020, which would reflect a notable 15% increase on its sales over the past 12 months. Statutory earnings per share are forecast to nosedive 93% to US$0.063 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$72.7b and earnings per share (EPS) of US$0.82 in 2020. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a large cut to EPS estimates.

It might be a surprise to learn that the consensus price target fell 5.8% to US$29.36, with the analysts clearly linking lower forecast earnings to the performance of the stock price. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Wells Fargo at US$46.00 per share, while the most bearish prices it at US$21.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. One thing stands out from these estimates, which is that Wells Fargo is forecast to grow faster in the future than it has in the past, with revenues expected to grow 15%. If achieved, this would be a much better result than the 1.9% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 2.2% per year. So it looks like Wells Fargo is expected to grow faster than its competitors, at least for a while.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Wells Fargo going out to 2022, and you can see them free on our platform here.

Even so, be aware that Wells Fargo is showing 2 warning signs in our investment analysis , you should know about...

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.