Wells Fargo’s turnaround by CEO Charlie Scharf has been noticed by investors, argues Real Money's Stephen “Sarge” Guilfoyle.
The bank’s fourth quarter was promising as Wells Fargo reported GAAP EPS of $1.38 and was able to beat Wall Street’s estimates. The company generated $20.86 billion in revenue, which was a year over year growth of 12.8% and beat market estimates by over $2 billion.
“Safe to say, and make no mistake, I am biased... that CEO Charles Scharf is indeed turning this bank around,” Guilfoyle wrote in a recent Real Money Pro column. “I just think we have to be careful here, as we are closer to what I consider to be my target from where I started this journey,” wrote Guilfoyle, who has a target price of $62 a share.
The bank also reported a return on equity (ROE) of 12.8%, an increase of 6.6% from last year while the bank's efficiency ratio dropped to 63% from 80%, which is a good sign because a lower ratio means fewer expenses over revenue.
Wells Fargo should benefit from the Federal Reserve raising interest rates in 2022 since it relies more on traditional banking compared to its competitors. One downside of the rate hikes is that the number of mortgage originations will decline, “which is a big deal here,” Guilfoyle wrote. “I also see the potential for the Fed to remove the still in place asset cap from Wells Fargo for the scandalous problems that Charles Scharf was brought in to clean up.”
While Wells Fargo’s future appears to be bright, investors still need to tread carefully, he wrote.