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Low Rates to Mar Wells Fargo's (WFC) Q2 Earnings Amid Crisis

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Wells Fargo WFC is scheduled to report second-quarter 2020 earnings, before the opening bell, on Jul 14.

Amid the coronavirus outbreak-induced economic slowdown and curtailment of business activities globally, overall growth in loans remained somewhat decent in the second quarter. Per the Fed’s latest data, commercial & industrial (C&I) loans witnessed significant growth in the quarter. However, growth in real estate loans was decent, while the demand for consumer loans declined, owing to the continued uncertainty resulting from the virus outbreak.

Despite soft loan growth, lower interest rates are expected to have hurt Wells Fargo’s net interest income (NII) and net interest margin, while lower deposit costs might have been an offsetting factor for margins to some extent. In order to shield the U.S. economy from the virus-related mayhem, the Federal Reserve had reduced benchmark interest rates to near-zero in March.

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

Mortgage Banking: The company’s mortgage banking revenues are expected to have improved in the quarter, owing to a rise in mortgage refinance volumes. While mortgage origination volumes might not have increased significantly in the quarter due to the concerns owing to the virus outbreak, refinancing activities surged due to lower mortgage rates.

Notably, the Zacks Consensus Estimate for Wells Fargo’s mortgage banking revenues is pegged at $779 million for the to-be-reported quarter, which suggests significant growth from the previous quarter’s reported figure.

Non-Interest Revenues: The second quarter witnessed a sharp rebound in equity markets. Moreover, unlike the March-end quarter, most asset-management businesses recorded net inflows during the to-be-reported quarter. Thus, asset management fee is likely to have been positively impacted.
However, card fees might have been hurt in the quarter on lower consumer spending due to the pandemic. The Zacks Consensus Estimate for card fees is pegged at $812 million, indicating a decline of 9% sequentially.

Expenses: Owing to the enhanced benefits and payments provided by Wells Fargo to employees in March, expenses are expected to have risen in the second quarter.

Moreover, because of the pandemic, the bank projects to incur additional expenses of more than $500 million for the quarter, which it did not anticipate earlier.

Provisions: Management expects provisions to be “quite significant” in the June-end quarter because of further worsening of the operating backdrop since March-end.

Now, let’s have a look at what our quantitative model predicts:

According to our quantitative model, it cannot be conclusively predicted whether Wells Fargo will be able to beat earnings estimates this time around. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.

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 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

The Zacks Consensus Estimate for its earnings for the to-be-reported quarter is pegged at 6 cents, which has been revised 14.3% lower over the past seven days. Moreover, the figure suggests a year-over-year decline of 95.4%.

The Zacks Consensus Estimate for sales of $18.02 billion indicates a decline of 16.5% from the prior-year quarter’s reported number.

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

Stocks That Warrant a Look

Here are a few stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat in their upcoming releases.

Bank of America Corporation BAC is scheduled to release results on Jul 16. The company has an Earnings ESP of +31.66% and currently carries a Zacks Rank of 3.

BlackRock, Inc. BLK is scheduled to release earnings figures on Jul 17. The company, which sports a Zacks Rank #1 (Strong Buy) at present, has an Earnings ESP of +5.21%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for TD Ameritrade Holding Corporation AMTD is +5.38% and the stock carries a Zacks Rank #2 (Buy), currently. It is scheduled to report quarterly numbers on Jul 21.

These Stocks Are Poised to Soar Past the Pandemic

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Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

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