Wells Fargo shares rallied Wednesday after the bank delivered better-than-expected earnings for the fourth quarter. While the reported numbers were solid, an upbeat outlook for 2025 stole the show. Total revenue for the three months ended Dec. 31 dipped 0.5% year over year to $20.38 billion — missing analysts’ expectations of $20.59 billion, according to market data provider LSEG. Adjusted earnings per share of $1.58 per share exceeded Wall Street’s consensus estimate of $1.35 per share, LSEG data showed. On its release, Wells Fargo only reported generally accepted accounting principles (GAAP) earnings per share. That number was $1.43 per share for Q4, including three one-time items. Analysts only excluded one of the items from their estimates, a 15-cent headwind from severance expenses, which translates into the $1.58 adjusted. WFC YTD mountain Wells Fargo 1 year Wells Fargo shares gained more than 7% on the news — trading above $76 per share. Their recent closing high was $77.35 on Nov. 26. The stock is up about 7% year to date after soaring nearly 43% in 2024. Due to the quarterly earnings beat and rosy 2025 outlook, we are bumping up our Wells Fargo price target to $84 per share from $80 but maintaining our 2 rating . Bottom line Continued strong execution under the leadership of CEO Charlie Scharf drove those positive results. It was not a perfect quarter, with fee-based revenue growing slower than anticipated. But it was good to see Wall Street look past an overall revenue miss for the second quarter in a row — something the bank hasn’t done since 2020 — and focus on the bigger picture. Years ago, Scharf set out to reduce Wells Fargo’s bloated cost structure, improve its risk and controls, invest in technology, and diversify revenue with more fee-based streams to reduce the bank’s reliance on net interest income (NII). The goal of those strategic priorities was to deliver a sustainable return on tangible common equity (ROTCE) of 15%. Operating results over the past year suggest the bank is well on track. It delivered a ROTCE of 13.4% for all of 2024. Wells Fargo Why we own it : We bought Wells Fargo as a turnaround story under CEO Charlie Scharf. He’s been making progress cleaning up the bank’s act and fixing its previously bloated cost structure after a series of misdeeds before his tenure. Scharf has also been working to get the Fed’s $1.95 trillion asset cap lifted and to boost Wells Fargo’s fee-generating revenue streams. Competitors : Bank of America and Citigroup Weight in Club portfolio : 4.5% Most recent buy : Aug. 7, 2024 Initiated : Jan. 8, 2021 The timeline to get there should accelerate once the longstanding Federal Reserve-mandated asset cap on the bank is lifted. The company’s guidance — which is driving the stock higher Wednesday because it was better than expected on net interest income and expense — assumes the $1.95 trillion ceiling will remain in place throughout the year. Recent media reports have suggested the cap — imposed in 2018 after a series of scandals that pre-dated Scharf — could be removed sooner, especially under the incoming Trump administration, which is expected to be deregulatory and more friendly to the banks. But we like management’s under-promise, over-deliver style. If President-elect Donald Trump follows through on reducing regulations, that could spur more dealmaking and initial public offerings (IPOs), which would benefit Wells Fargo’s growing investment banking business. Commentary NII fell 7% year over year to $11.8 billion but that was a beat versus estimates of about $11.7 billion. The bank cited deposit mix and pricing changes, the impact of lower rates on floating rate assets, and lower loan balances as reasons for the decline. Average loans were down 3% while deposits increased 1%. Non-interest income increased 10% to $8.4 billion but missed estimates of $8.8 billion. Still, it was positive to see the bank continue to show solid growth across these businesses. Investment advisory fees and brokerage commissions increased 15%, deposit and lending-related fees were up 4%, card fees increased 6%, and investment banking fees increased 59%. In recent years, Scharf has expanded Wells Fargo’s IB operations under the constraints of the Fed-imposed asset cap. Lifting the cap would allow IB to grow further. Non-interest expenses fell $1.9 billion, or about 12%, to $13.9 billion. Still, that was higher than estimates. If you exclude last year’s FDIC special assessment, expenses were relatively stable. The Federal Deposit Insurance Corporation collected money from big banks to recoup what it spent to provide industry stability after the failure of Silicon Valley Bank in March 2023. The bank repurchased $4 billion of stock in the quarter, bringing its total for the year to $20 billion. That led to a 9% reduction in the common shares outstanding from a year ago. Guidance Wells Fargo provided a double dose of good news with its 2025 outlook. Management expects NII to increase 1% to 3% from last year’s $47.7 billion. At a 2% midpoint, the implied forecast of about $48.65 billion is a solid upside surprise to the FactSet consensus estimate of $47.16 billion, which implied a decline of about 1%. The NII guide implies growth will be back half weighted, with the first half of the year expected to be “relatively stable.” The bank’s outlook included the expectation that the Fed will cut interest rates between one and two times in 2025 following the three cuts last year. The expense outlook was good too. Wells Fargo expects expenses to total about $54.2 billion, representing a slight decline from $54.6 billion in 2024. This view is slightly better than the consensus outlook of $54.3 billion. The bank’s outlook includes the expectation that it will see an increase of $600 million in expenses tied to revenue-related expenses from its wealth and investment management business. This is a good thing because these higher costs will be more than offset by higher non-interest income. Wells Fargo also expects to generate $2.4 billion of gross expense reduction from efficiency initiatives. However, these gains are expected to be more than offset by incremental technology expenses, incremental “other investments” like targeted hiring in investment banking, and other expected merit increases and performance-based compensation. (Jim Cramer’s Charitable Trust is long WFC. See here for a full list of the stocks.) 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Wells Fargo shares rallied Wednesday after the bank delivered better-than-expected earnings for the fourth quarter. While the reported numbers were solid, an upbeat outlook for 2025 stole the show.