Bad News for WFC Stock?
Wells Fargo & Company (NYSE:WFC) is probably the last megabank to focus on traditional banking activities. A strong lending portfolio insulated WFC stock during volatile years, but the company’s next earnings release might be surprisingly bad.
The company’s first-quarter results for 2016 are due before the opening bell tomorrow (Thursday, April 14). Rather than the usual steady performance, we may see Wells Fargo crack under pressure from persistently low oil prices, a strong dollar, and low interest rates.
After all, at the end of last year, banks believed the Federal Reserve was on track to keep raising interest rates through 2016. The Fed has since tapered expectations, but that may have left the banks between a rock and a hard place.
A survey from FactSet shows analysts are expecting earnings of $0.97 per share, down from $1.04 a year before. The lower earnings come despite a slight increase in revenue, from $21.28 billion to $21.54 billion. (Source: “What to expect from Wells Fargo’s earnings,” MarketWatch, April 13, 2016.)
Markets will be paying particularly close attention to the bank’s energy portfolio. The commodity slump has posed a serious threat to the bank’s bottom line, but investors already know that. They’ll be looking to see the extent of the damage and whether or not Wells Fargo can put a lid on the contagion.
The bank put aside $1.2 billion in February to show that it was prepared for a loss in that segment of its lending portfolio. One sentence from that filing had us particularly worried.
“If oil prices remain low for a prolonged period of time, there could be additional performance deterioration in our oil and gas portfolio resulting in higher criticized assets, nonperforming loans, allowance levels and ultimately credit losses,” the filing read.
In any case, WFC stock is down 12.8% from a year ago, so perhaps the losses are already priced in. At this point, the best-case scenario is an “exceeds expectations.”