YTD stock performance
So far, Wells Fargo (WFC) shares have underperformed its peers and the broader markets in 2019. Wells Fargo stock has risen 1.5% on a YTD (year-to-date) basis as of April 15. In comparison, Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), and JPMorgan Chase (JPM) shares increased 29.4%, 21.1%, 19.7%, and 12.6%, respectively. Meanwhile, the S&P 500 has risen 15.9% on a YTD basis.
Lower credit offtake, a decline in deposits, and an increase in non-performing assets are limiting the upside for Wells Fargo stock.
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Wells Fargo stock is trading at a forward PE ratio of 9.8x, which is ~20% lower than its four-year average multiple of 12.2x. However, the bank’s lower valuation probably won’t support its stock. An expected decline in the net interest income could limit the upside.
Wells Fargo lowered its net interest income outlook. The company expects the net interest income to fall 2% to 5% in 2019. Earlier, Wells Fargo’s management expected its net interest income to either fall 25% or increase 2%. The tightening credit spread amid heightened competitive activity, lower credit offtake, and decline in deposits is expected to hurt the bank’s top line. Wells Fargo’s efficiency ratio of 64.4% is higher than its peers.