Wells Fargo (WFC) Stock Still Looks Below Fair Value As Broader Checks Stay Mixed
Wells Fargo stock has delivered a very strong 3 year run, yet several valuation checks still point to room between the current share price and an intrinsic value estimate based on an Excess Returns model. Investors now face a stock that has already rewarded patience and still screens as potentially undervalued on both intrinsic value and market multiples.
- Wells Fargo has returned 134.1% over the past 3 years, which puts extra focus on whether the current price already reflects the improvement that has taken place in the business.
- The bank's US$1.5b wealth management revamp and push to attract more independent advisers can support higher fee based revenue over time, while any large acquisition or shift in the interest rate backdrop may add uncertainty to future earnings quality.
- Across a wider set of checks Wells Fargo earns a value score of 4 out of 6, which points to a mixed picture rather than a clear bargain or clear overvaluation at today's levels.
The issue now is whether Wells Fargo's recent gains already capture the upside implied by intrinsic value estimates or if investors are still being paid adequately for the remaining risks.
Capitalize on Wells Fargo's mixed valuation signal and 3 year surge by scanning a hand picked set of quality opportunities in the 54 high quality undervalued stocks that still screen as undervalued on fundamentals.Is Wells Fargo Still Cheap on Excess Returns?
The Excess Returns model compares what Wells Fargo earns on its equity with the return shareholders require. For Wells Fargo, the model uses a Book Value of $54.43 per share and a Stable EPS of $8.25 per share, based on weighted future Return on Equity estimates from 17 analysts. With an Average Return on Equity of 13.44% and a Cost of Equity of $5.32 per share, the implied Excess Return of $2.93 per share supports a Stable Book Value of $61.39 per share over time.
Using these inputs, the Excess Returns model indicates an estimated intrinsic value of $120.29 per share, which suggests the stock is about 25.8% undervalued relative to the current market price. The recent US$1.5 billion wealth management revamp and the push to hire more independent advisers help explain why the market is assigning a stronger franchise value, yet the share price remains below this intrinsic estimate.
On this Excess Returns view, Wells Fargo stock still appears undervalued relative to what its projected profitability on equity would support.
Our Excess Returns analysis suggests Wells Fargo is undervalued by 25.8%. Track this in your watchlist or portfolio, or discover 54 more high quality undervalued stocks.
Does Wells Fargo Look Undervalued on Earnings?
P/E is often the cleanest way to compare Wells Fargo with other large banks because earnings remain a key driver of how investors price the sector. On this measure, Wells Fargo trades on a P/E of about 12.5x, which is below the peer group average of roughly 13.3x and only modestly above the wider banks industry at about 11.7x.
The fair P/E ratio implied by the company’s profile is about 14.5x. That is higher than both the current multiple and the peer and industry averages, which points to a gap between what investors are currently paying for Wells Fargo’s earnings and what this framework suggests could be justified. The stock therefore screens at a discount on earnings despite the three year share price run and the ongoing US$1.5b wealth management revamp.
On the P/E multiple, Wells Fargo stock appears undervalued relative to the earnings level that this model suggests investors might be willing to pay for.
See what the numbers say about this price — find out in our valuation breakdown.
The Wells Fargo Narrative: What Would Justify Today's Price?
Simply Wall St Narratives pick up where the Wells Fargo valuation puzzle leaves off and spell out which assumptions about growth, margins and earnings would need to hold for the stock to be worth materially more or less than today’s price on the Community page. Each narrative ties a fair value estimate to a specific view of Wells Fargo's potential catalysts and risks so you can track which storyline is aligning with actual outcomes over time.
Share a narrative on Wells Fargo that lays out your number driven view on whether the US$1.5b wealth management revamp and adviser hiring push supports the current valuation or not. Add your voice to the Simply Wall St community and track how your thesis holds up as new results and developments emerge.
Do you think there's more to the story for Wells Fargo? Head over to our Community to see what others are saying!
The Bottom Line
For Wells Fargo, both the Excess Returns intrinsic value estimate and the P/E based comparison still point to an undervalued stock, even after a strong 3 year period. The broader checks paint a mixed picture rather than a screaming bargain, which keeps the focus on execution. The key question from here is whether the wealth management revamp and adviser expansion translate into earnings quality that the market is willing to re rate, or if the current discount is the market pricing in the remaining risks.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
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