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Fee Income to Aid Wells Fargo (WFC) Q3 Earnings Amid Low Rates?

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  • WFC-PZ

Wells Fargo WFC is scheduled to report third-quarter 2020 results, before the opening bell, on Oct 14.

Amid the coronavirus crisis-induced global economic slowdown and reduced business activities, overall growth in loans was somewhat soft in the third quarter. Per the Fed’s latest data, weakness in revolving home equity and consumer loans, along with commercial and industrial (C&I), might have offset growth in commercial real estate loans.

The central bank slashed interest rates to near zero this March, in order to shield the U.S. economy from the coronavirus mayhem. This is likely to have hurt Wells Fargo’s net interest margin and income. Additionally, the impact of the Paycheck Protection Program (PPP) might have dragged down margins during the period under consideration. However, low deposit costs are likely to have been an offsetting factor. The Zacks Consensus Estimate of $9.9 billion for quarterly NII suggests a 1% decline from the prior quarter.

Now, let’s take a look at the other factors that are likely to have influenced Wells Fargo’s third-quarter performance:

Mortgage Banking: Mortgage activity is strong, supported by significantly high refinance activity and robust purchase activity. Origination volumes were also high, while gain on sale margins is likely to have recorded increase as well. These factors are anticipated to have supported Wells Fargo’s mortgage banking fees in the to-be-reported quarter.

Notably, the Zacks Consensus Estimate for Wells Fargo’s mortgage banking revenues is pegged at $963 million for the September-end quarter, which suggests significant growth from the previous quarter.

Non-Interest Revenues: The third quarter witnessed continued strength in equity markets, boosting market-driven revenues. Wealth, trust, trading and asset management revenues are expected to have recorded high numbers. As initial fee waivers begin to expire, a rebound in deposit service charges, though at a slower pace, is likely to have been witnessed.

Moreover, card fees are anticipated to have supported consumer spending during the quarter under review. The Zacks Consensus Estimate for card fees is pegged at $848 million, indicating a rise of 6.4% sequentially.

At a conference last month, John Shrewsberry — chief financial officer (CFO) at Wells Fargo — said, trust and investment fees are likely to be stronger on positive markets, while card fees might escalate on improved debit and credit card spending. Further, the third-quarter deposit-related fees are expected to have recorded growth as huge amount of deposit-related fees were waived during the June-end quarter. Also, with volume and margin on the production side to be in level with the prior quarter, the bank expects mortgage numbers to have performed well. Furthermore, trading performance is anticipated to have been robust during the quarter in discussion.

High Expenses: Wells Fargo’s costs might have flared up during the July-September period, given its franchise investments in areas, including mobile-banking technology, digital lending and brokerage offerings. Additionally, ongoing litigation hassles are likely to have resulted in elevated legal costs in the quarter to be reported.

Asset Quality: Having already built quite significant in the June-end quarter because of further worsening of the operating backdrop since the end of March, Wells Fargo is less likely to have recorded substantial increase in provision for loan losses in the third quarter.

Here is what our quantitative model predicts:

Wells Fargo does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Wells Fargo is +4.15%.

Zacks Rank: Wells Fargo currently carries a Zacks Rank of 4, which decreases the predictive power of ESP.

Over the last seven days, the Zacks Consensus Estimate for earnings has moved north on analysts’ optimism. However, the estimate reflects a 50% plunge on a year-over-year basis.

Further, the Zacks Consensus Estimate of $17.9 billion for quarterly sales calls for an 18.7% decline from the prior-year quarter.

 

Wells Fargo Company Price and EPS Surprise

Wells Fargo  Company Price and EPS Surprise
Wells Fargo Company Price and EPS Surprise

Wells Fargo Company price-eps-surprise | Wells Fargo Company Quote

Banks Worth a Look

Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:


The Earnings ESP for CullenFrost Bankers, Inc. CFR is +2.61% and the stock carries a Zacks Rank of 3, at present. The company is slated to report third-quarter numbers on Oct 29. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Bancshares Incorporated HBAN is set to release earnings figures on Oct 22. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +2.88%.

U.S. Bancorp USB is scheduled to release quarterly results on Oct 14. The company has an Earnings ESP of +7.7% and currently carries a Zacks Rank of 3.

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U.S. Bancorp (USB) : Free Stock Analysis Report
 
Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
 
Wells Fargo Company (WFC) : Free Stock Analysis Report
 
CullenFrost Bankers, Inc. (CFR) : Free Stock Analysis Report
 
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