Wells Fargo & Co Valuation – April 2019 #WFC
Company Profile (excerpt from Reuters): Wells Fargo & Company, incorporated on January 24, 1929, is a bank holding company. The Company is a diversified financial services company. The Company has three operating segments: Community Banking, Wholesale Banking, and Wealth and Investment Management. The Company provides retail, commercial and corporate banking services through banking locations and offices, the Internet and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia and in other countries. The Company provides other financial services through its subsidiaries engaged in various businesses, principally: wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency and brokerage services, computer and data processing services, trust services, investment advisory services, mortgage-backed securities servicing and venture capital investment. The Company has its administrative facilities at various locations, including Phoenix, Arizona; San Francisco, California; San Jose, California; Greenwood Village, Colorado; Littleton, Colorado; Rochester, Minnesota; St. Louis, Missouri; Las Vegas, Nevada; Portland, Oregon, and Austin, Texas. The Company offers approximately 13,000 automated teller machines (ATMs) and over 6,000 retail banking stores coast to coast.
Downloadable PDF version of this valuation:
ModernGraham Valuation of WFC – April 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass all 6 of the following tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $220,466,305,698 | Pass | |
| 2. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 3. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 4. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 55.90% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 11.21 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.16 | Pass | |
| Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor. | ||||
| 1. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 2. Dividend Record | Currently Pays Dividend | Pass | ||
| 3. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $4.33 |
| MG Growth Estimate | 1.75% |
| MG Value | $52.06 |
| Opinion | Fairly Valued |
| MG Grade | A- |
| MG Value based on 3% Growth | $62.85 |
| MG Value based on 0% Growth | $36.84 |
| Market Implied Growth Rate | 1.36% |
| Current Price | $48.61 |
| % of Intrinsic Value | 93.38% |
Wells Fargo & Co qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.88 in 2015 to an estimated $4.33 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 1.36% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Wells Fargo & Co revealed the company was trading below its Graham Number of $63.18. The company pays a dividend of $1.64 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.21, which was below the industry average of 15.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Wells Fargo & Co fares extremely well in the ModernGraham grading system, scoring an A-.
Stage 3: Information for Further Research
| Graham Number | $63.18 |
| PEmg | 11.21 |
| PB Ratio | 1.16 |
| Dividend Yield | 3.37% |
| TTM Dividend | $1.64 |
| Number of Consecutive Years of Dividend Growth | 8 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Long-Term Debt & Capital Lease Obligation | $229,044,000,000 |
| Total Assets | $1,895,883,000,000 |
| Intangible Assets | $43,055,000,000 |
| Total Liabilities | $1,698,817,000,000 |
| Shares Outstanding (Diluted Average) | 4,698,600,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $4.70 |
| Dec2018 | $4.28 |
| Dec2017 | $4.10 |
| Dec2016 | $3.99 |
| Dec2015 | $4.12 |
| Dec2014 | $4.10 |
| Dec2013 | $3.89 |
| Dec2012 | $3.36 |
| Dec2011 | $2.82 |
| Dec2010 | $2.21 |
| Dec2009 | $1.75 |
| Dec2008 | $0.70 |
| Dec2007 | $2.38 |
| Dec2006 | $2.47 |
| Dec2005 | $2.25 |
| Dec2004 | $2.05 |
| Dec2003 | $1.83 |
| Dec2002 | $1.58 |
| Dec2001 | $0.99 |
| Dec2000 | $1.16 |
| Dec1999 | $1.15 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $4.33 |
| Dec2018 | $4.14 |
| Dec2017 | $4.06 |
| Dec2016 | $3.99 |
| Dec2015 | $3.88 |
| Dec2014 | $3.60 |
| Dec2013 | $3.17 |
| Dec2012 | $2.59 |
| Dec2011 | $2.13 |
| Dec2010 | $1.83 |
| Dec2009 | $1.73 |
| Dec2008 | $1.80 |
| Dec2007 | $2.30 |
| Dec2006 | $2.18 |
| Dec2005 | $1.94 |
| Dec2004 | $1.69 |
| Dec2003 | $1.46 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
