We believe this Wells fargo Stock (NYSE: WFC) has an upside potential of 65% over a period of 1 to 2 years, as the loan repayment capacity of its bank customers improves. WFC is currently trading at $ 22 and has lost 58% of its value since the start of the year. It traded at a pre-Covid high of $ 46 in February and is 53% below that level now. Additionally, WFC stock fell 12% from the March 2020 level of $ 25, despite the multibillion-dollar stimulus package announced by the U.S. government that has largely helped the stock market recover. That said, the stock is lagging behind wider markets (S&P 500 is up around 50%) as investor sentiment is negative due to poor third quarter results – revenue down 14% year-on-year and Wells Fargo’s limitation on handling defaults. and extend credit lines relative to peers due to Fed Asset restrictions. However, the Fed’s asset growth restriction is expected to be lifted soon and all banks are expected to resume share buybacks in fiscal 2021, which will contribute to stock prices in the near future. Our conclusion is based on our detailed analysis of Wells Fargo’s stock market performance during the current crisis with that of the 2008 recession in an interactive dashboard analysis.
Coronavirus crisis 2020
- 12/12/2019: Coronavirus cases first reported in China
- 01/31/2020: WHO declares global health emergency.
- 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
- 03/23/2020: S&P 500 34% drop of the maximum level observed on February 19, as cases of Covid-19 accelerate outside China. It doesn’t help that oil prices collapse in mid-March amid a Saudi-led price war
- From 03/24/2020: S&P 500 recovers 52% since lows on March 23, when the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and puts liquidity into the system.
In contrast, here is how WFC and the market as a whole behaved during the crisis of 2007/2008.
Timeline of the 2007-08 crisis
- 1/10/2007: Approximate pre-crisis peak of the S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
- 03/01/2009: Approximate low of the S&P 500 index
- 1/1/2010: Initial recovery to levels before the accelerated decline (around 9/1/2008)
Wells Fargo vs. S&P 500 Performance on the 2007-08 Financial Crisis
WFC’s stock fell from levels of around $ 25 in October 2007 (the pre-crisis peak) to around $ 9 in March 2009 (as markets bottomed out), implying that the stock has lost up to 65% of its value from its approximate pre-crisis value. peak of crisis. This marked a higher drop than the larger S&P, which fell about 51%.
However, the WFC recovered sharply from the 2008 crisis to reach around $ 20 in early 2010 – up 124% between March 2009 and January 2010. In comparison, the S&P rebounded around 48% on the market. same period.
Wells Fargo’s Fundamentals Over The Past Years Look Strong
Wells Fargo’s revenues fell -1%, from $ 86.1 billion in 2015 to $ 85.1 billion in 2019, mainly due to negative growth in the community banking segment. In addition, the company’s net income fell from $ 21.6 billion to $ 17.9 billion, leading to a decline in EPS from $ 4.21 in 2015 to $ 4.08 in 2019. In In addition, the company’s revenues in Q2 2020 were 17% lower than the quarter went from $ 1.31 in Q2 2019 to – $ 0.66 in Q2 2020, mainly due to a large increase in the allowance for credit losses.
Phases of the Covid-19 crisis:
- Beginning to mid-March 2020: Fear of the rapidly spreading coronavirus epidemic results in reality, with an acceleration in the number of cases worldwide
- End of March 2020 and beyond: social distancing measures + lockdowns
- April 2020: Nourished stimulation suppresses short-term survival anxiety
- May-June 2020: Resumption of demand, with the gradual lifting of lockouts – no more panic despite a steady increase in the number of cases
- July-October 2020: mediocre results in Q2 and lukewarm expectations in Q3, but continue improvement in demand, a decrease in the number of new cases, and advances in vaccine development boost market sentiment
Given the trajectory over 2009-10 and given the improvement in Wells Fargo stock since late March, this suggests a potential rally to around $ 36 (66% up) once economic conditions start showing signs. improvement. This marks a partial recovery to Wells Fargo’s stock level of $ 46 before the coronavirus outbreak gains global momentum.
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