Banking giant Wells Fargo’s Q2 2018 earnings report will be made public before Friday’s US market open. The consensus recommendation for the company is “hold”, which negatively compares to the “buy” average consensus recommendation for the Banks peer group.
The bank’s earnings per share (EPS) are anticipated to come in at $1.12 during the second quarter, according to analysts submitting their projections to Thomson Reuters’ estimate system (the Institutional Brokers’ Estimate System – I/B/E/S). Current expectations reflect a downward revision from $1.13 from four weeks ago. If the corporation’s bottom line matches estimates, this would represent an increase by around 4.5% relative to the same quarter last year when the firm made $1.07 per share. Meanwhile, analysts’ EPS forecasts range from $1.05 to $1.16. Wells Fargo delivered an earnings beat in two of the four preceding quarters, while its results fell short of forecasts twice.
A positive earnings surprise could see the corporation’s stock price generate buying interest. Resistance to price advances could take place around the 38.2% Fibonacci retracement level of the January 29 to April 18 downleg at $56.40; notice that this is where the current level of the 200-day moving average roughly lies as well. Stronger gains would turn the attention to the four-month high of $57.12 which was recorded in late June and then to the 50% Fibonacci mark at $58.29. If, on the other hand, financial results disappoint, the stock might come under downside pressure, with support to declines potentially coming around the 23.6% Fibonacci level at $54.05; the 50-day MA at $54.56 is part of the area around this point. Further below, the 10-month low of $50.26 hit on April 18 would increasingly come into scope. It should be kept in mind that greater deviations between projected and actual results tend to result in more considerable movements in a given firm’s share price.
Gauging the stock price’s short-term momentum with the RSI, the indicator has turned lower after largely moving sideways in the previous few sessions. It is still early though to conclude towards the direction of a negative bias; either way, tomorrow’s release has the potential to shift the momentum in either direction. Relating to the release, it should also be said that beyond the bottom line figure, investors will also be scrutinizing Wells Fargo’s revenue number.
Some of the factors expected to affect the outlook for financials are the future path of interest rates, as well as the regulatory environment moving forward. With respect to the former, the Federal Reserve remains on track to continue delivering interest rate hikes, something which is bank-positive as it is supportive of higher margins for banks. It is noteworthy though, that the much-talked about flattening US yield curve – the narrowing difference between long- and short-dated bond yields – is complicating matters, offsetting some of the benefits for banks from rising short-term yields.
Regulation-wise, the prospect of scaling down on regulatory burdens imposed in the aftermath of the 2008 global financial crisis could well depend on the outcome of November’s mid-term elections. During that electoral fight, all seats of the House of Representatives and 33 of 100 Senate seats will be contested. Republicans losing power is likely to be seen as weakening the odds for deregulation in the banking sector, something which is expected to weigh on financials.
While corporate earnings are likely to divert some attention out of global trade considerations – the US-China spat –, pending issues remain in the background and could affect overall equity market sentiment. Relating to Wells Fargo, it should be said that it may outperform in the event of escalating tensions due to it being a domestically-driven bank, thus being protected to an extent from disruptions in world commerce (it should be stressed though that outperformance doesn’t necessarily translate into positive performance).
Wells Fargo is an S&P 500 constituent stock. Year-to-date, the firm’s stock price is trading lower by 7.6%, with the S&P being up by 3.8% throughout the same period. Analysts’ mean and median price targets on the company’s stock stand at $61.57 and $62.50 correspondingly, pointing to upside potential compared to where the shares currently trade.
In terms of valuation considerations based on the price-to-earnings ratio, the corporation’s consensus forward P/E ratio (price over forecasted earnings over the next twelve months) is roughly in line with the peer group’s respective number, but below its five-year average, as well as below the market’s corresponding figure. The Banks’ forward P/E being below the market’s may indicate that the group is undervalued relative to the overall market, or that they lack growth prospects relative to other industry groups.
Other notable earnings releases on Friday are those from fellow financials JPMorgan Chase, Citigroup, and PNC Financial Services Group. In the bigger picture, Factset estimates put the S&P 500’s earnings growth rate at 20.0% in Q2, which if delivered it will constitute the second highest earnings growth since Q3 2010. Specific to US banks, the brokerage department of Credit Suisse projects them to report earnings growth of around 22%, expecting an acceleration in investment banking revenues and loan growth.
Returning to Wells Fargo, the chart below shows the reinvested total return from an investment in the company and the S&P 500 five years ago. One such investment in the former would have yielded 53.5%, underperforming the benchmark’s 86.2% gain.
Banking giant Wells Fargo’s Q2 2018 earnings report will be made public before Friday’s US market open. The consensus recommendation for the company is “hold”, which negatively compares to the “buy” average consensus recommendation for the Banks peer group.
The bank’s earnings per share (EPS) are anticipated to come in at $1.12 during the second quarter, according to analysts submitting their projections to Thomson Reuters’ estimate system (the Institutional Brokers’ Estimate System – I/B/E/S). Current expectations reflect a downward revision from $1.13 from four weeks ago. If the corporation’s bottom line matches estimates, this would represent an increase by around 4.5% relative to the same quarter last year when the firm made $1.07 per share. Meanwhile, analysts’ EPS forecasts range from $1.05 to $1.16. Wells Fargo delivered an earnings beat in two of the four preceding quarters, while its results fell short of forecasts twice.
A positive earnings surprise could see the corporation’s stock price generate buying interest. Resistance to price advances could take place around the 38.2% Fibonacci retracement level of the January 29 to April 18 downleg at $56.40; notice that this is where the current level of the 200-day moving average roughly lies as well. Stronger gains would turn the attention to the four-month high of $57.12 which was recorded in late June and then to the 50% Fibonacci mark at $58.29. If, on the other hand, financial results disappoint, the stock might come under downside pressure, with support to declines potentially coming around the 23.6% Fibonacci level at $54.05; the 50-day MA at $54.56 is part of the area around this point. Further below, the 10-month low of $50.26 hit on April 18 would increasingly come into scope. It should be kept in mind that greater deviations between projected and actual results tend to result in more considerable movements in a given firm’s share price.
Gauging the stock price’s short-term momentum with the RSI, the indicator has turned lower after largely moving sideways in the previous few sessions. It is still early though to conclude towards the direction of a negative bias; either way, tomorrow’s release has the potential to shift the momentum in either direction. Relating to the release, it should also be said that beyond the bottom line figure, investors will also be scrutinizing Wells Fargo’s revenue number.
Some of the factors expected to affect the outlook for financials are the future path of interest rates, as well as the regulatory environment moving forward. With respect to the former, the Federal Reserve remains on track to continue delivering interest rate hikes, something which is bank-positive as it is supportive of higher margins for banks. It is noteworthy though, that the much-talked about flattening US yield curve – the narrowing difference between long- and short-dated bond yields – is complicating matters, offsetting some of the benefits for banks from rising short-term yields.
Regulation-wise, the prospect of scaling down on regulatory burdens imposed in the aftermath of the 2008 global financial crisis could well depend on the outcome of November’s mid-term elections. During that electoral fight, all seats of the House of Representatives and 33 of 100 Senate seats will be contested. Republicans losing power is likely to be seen as weakening the odds for deregulation in the banking sector, something which is expected to weigh on financials.
While corporate earnings are likely to divert some attention out of global trade considerations – the US-China spat –, pending issues remain in the background and could affect overall equity market sentiment. Relating to Wells Fargo, it should be said that it may outperform in the event of escalating tensions due to it being a domestically-driven bank, thus being protected to an extent from disruptions in world commerce (it should be stressed though that outperformance doesn’t necessarily translate into positive performance).
Wells Fargo is an S&P 500 constituent stock. Year-to-date, the firm’s stock price is trading lower by 7.6%, with the S&P being up by 3.8% throughout the same period. Analysts’ mean and median price targets on the company’s stock stand at $61.57 and $62.50 correspondingly, pointing to upside potential compared to where the shares currently trade.
In terms of valuation considerations based on the price-to-earnings ratio, the corporation’s consensus forward P/E ratio (price over forecasted earnings over the next twelve months) is roughly in line with the peer group’s respective number, but below its five-year average, as well as below the market’s corresponding figure. The Banks’ forward P/E being below the market’s may indicate that the group is undervalued relative to the overall market, or that they lack growth prospects relative to other industry groups.
Other notable earnings releases on Friday are those from fellow financials JPMorgan Chase, Citigroup, and PNC Financial Services Group. In the bigger picture, Factset estimates put the S&P 500’s earnings growth rate at 20.0% in Q2, which if delivered it will constitute the second highest earnings growth since Q3 2010. Specific to US banks, the brokerage department of Credit Suisse projects them to report earnings growth of around 22%, expecting an acceleration in investment banking revenues and loan growth.
Returning to Wells Fargo, the chart below shows the reinvested total return from an investment in the company and the S&P 500 five years ago. One such investment in the former would have yielded 53.5%, underperforming the benchmark’s 86.2% gain.
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