Stocks

Wells Fargo & Co 4Q17 Earnings Preview: Listen For A Plan On The Call

Friday brings the unofficial beginning of the fourth-quarter earnings season, with Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) scheduled to report. The Wells Fargo 4Q17 earnings results are expected to come in at $1.23 per share on $22.4 billion in revenue, compared to the year-ago quarter’s results of 96 cents per share on $21.6 billion in revenue.

wells fargo 4q17 earnings
By The original uploader was Henry W. Schmitt at English Wikipedia (Transferred from en.wikipedia to Commons.) [Public domain], via Wikimedia Commons

What to expect on the Wells Fargo 4Q17 earnings call

Bank stocks have been soaring for about the last six months but especially within the last several weeks. Wall Street is focused on how the tax reform bill will impact major U.S. banks this year. The KBW Nasdaq Bank Index jumped on Wednesday and continued moving higher in early trading on Thursday.

In a preview note covering major U.S. banks this week, Deutsche Bank analyst Matt O-Connor highlighted the tax reform bill as a key focus, in the form of both positives and negatives. O-Connor highlighted several comments from banks about expected impacts from tax reform. Wells Fargo management said tax reform could raise gross domestic product by 0.5% gradually, and they believe a gain in the bank’s deferred tax liabilities is likely.

O-Connor believes that of all the 4Q17 bank earnings slated for release within the next week, Wells Fargo is the one to watch. He noted that Wells Fargo stock has been climbing steadily for more than a month. He said the shares were up by about 12% and beating the KBW bank index by about 7.5% since the beginning of December. That’s when he highlighted the Wells Fargo 4Q17 earnings call as a potential positive catalyst. He also said that investor interest in the shares has increased more recently. As a result, he feels that the bar for Wells Fargo 4Q17 earnings has been set higher going into the results.

Wells Fargo 4Q17 earnings release is the one to watch

The Deutsche Bank analyst expects the bank to set its full-year expense target at approximately $53 billion for fiscal 2018, versus 2017’s expenses of $54 billion. He added that it will also be important for the bank to set a path toward lower absolute expenses next year through $2 billion in net savings, lower premiums for FDIC insurance and a decline in CDI amortization from $851 million last year to $769 million this year.

Further, he wants to see Wells Fargo management lay out a path toward an inflection in revenues, possibly sometime around the middle of this year. Additionally, he wants to hear assurance that they have identified all of the bank’s legacy issues and are addressing them.

One day before the Wells Fargo 4Q17 earnings release, the bank’s shares turned lower immediately after trading opened, falling by less than 1% to as low as $62.76 to subtract from Wednesday’s gains.