Wells Fargo Looks Undervalued Ahead Of Earnings Acceleration

For now, the market is not pricing banks like the earnings growth leaders they will likely prove to be in 2023. Higher rates and operating leverage should drive bank earnings up strongly (high teens year-over-year growth on a per share basis) next year, but the large caps are still trading around 10x '23 earnings, about 250bp below the typical forward multiple.

Wells Fargo (NYSE:WFC) is no exception, and I do believe the shares are priced for an attractive double-digit annualized return at today's price. That said, investors shouldn't be lulled into thinking this is a risk-free opportunity. While I do like Wells Fargo's leverage to "Main Street banking" (and its lack of exposure to capital markets), whether the Fed can bring inflation to heel without pushing the economy into recession remains to be seen, and Wells Fargo is likely to see more pressure on its funding costs as the cycle goes on.

 

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Wells Fargo Looks Undervalued Ahead Of Earnings Acceleration