12 Sep

Where Wells Fargo Stands among Its Peers

WRITTEN BY Anirudha Bhagat

Premium valuation

The price-to-book value ratio (or PBV) is considered the best multiple for valuing companies in the insurance, finance, and banking spaces, as these companies have significant liquid and tangible assets on their books. A PBV of lower than 1.0 indicates that a stock is undervalued and is considered a good buy.

However, finding stocks that are trading below their book values in a bullish market scenario can be a challenge. Therefore, stocks that are trading below the multiples of their peers as well as the industry average could be a good option in such a situation.

Where Wells Fargo Stands among Its Peers

Wells Fargo & Company (WFC) is currently trading at a PBV of 1.54x, a slight premium to the industry average of ~1.48x. Moreover, the stock’s valuation is higher than those of its close peers. Citigroup (C), Goldman Sachs (GS), and Morgan Stanley (MS) have PBVs of 0.97x, 1.19x, and 1.28x, respectively.

PE ratio

Because stock prices also reflect long-term expected earnings growth, the PBV may not always be reflective of a company’s performance. A company may have a low PBV for other reasons, including weak earnings, a highly volatile business, or a highly leveraged balance sheet.

Additionally, a company that’s in a mature or declining phase may also have a low PBV. For this reason, investors may wish to examine other valuation indicators, such as the PE ratio.

Wells Fargo currently trades at a trailing-12-month PE of 13.65x, higher than the industry average of 13.10x. Compared to its peers, the stock is trading at a premium. The trailing-12-month PEs of Citigroup, Goldman Sachs, and Morgan Stanley are 11.59x, 9.81x, and 10.85x, respectively.

Based on Wall Street’s earnings estimates for the next 12 months, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley have forward PEs of 11.56x, 9.59x, 9.19x, and 9.41x, respectively.

The Oppenheimer S&P Financials Revenue ETF (RWW) holds ~6.8% of its portfolio in Wells Fargo stock.

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