Wells Fargo & Co. (WFC) is trading lower by more than 6% in Thursday session after beating Q1 2022 earnings-per-share estimates (EPS) by $0.08 and coming up short on revenue. The banking giant posted a profit of $0.88 per-share on a 5.2% year-over-year decline in revenue to $17.52 billion, more than $200 million below $17.82 billion expectations. The company noted lower income from government stimulus programs, just like JP Morgan Chase and Co. (JPM) on Wednesday.
Geopolitical Headwinds and the Fed
Citigroup analyst Keith Horowitz shot blanks when he upgraded the stock to ‘Buy’ ahead of the report, noting “a very strong deposit base and excess liquidity”. Horowitz also insisted that Wells Fargo was “best positioned for higher rates and we see 8% EPS upside in 2023, with limited credit risk”. Unfortunately, the mixed report featured little of the optimism expressed by the analyst, with executives outlining major obstacles to 2022 profitability
Wells Fargo CEO Charlie Scharf looked for scapegoats to explain the 5% year-over-year revenue decline after the release, noting “Our internal indicators continue to point towards the strength of our customers’ financial position, but the Federal Reserve has made it clear that it will take actions necessary to reduce inflation and this will certainly reduce economic growth. In addition, the war in Ukraine adds additional risk to the downside.”
Wall Street and Technical Outlook
Wall Street consensus stands at an ‘Overweight’ rating based upon 16 ‘Buy’, 7 ‘Overweight’, and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $53 to a Street-high $71 while the stock is set to open Thursday’s session more than $6 below the low target. This dismal placement highlights the failure of analysts to properly evaluate Wells’ 2022 growth outlook.
Wells Fargo hit an all-time high at 66.31 in 2018 and plunged to an 11-year low in October 2020. The subsequent uptick reversed at the .786 Fibonacci selloff retracement level in January 2022, yielding a short-lived breakout, followed by a failure swing that undercut 200-day moving average support in March. The stock has been testing that critical level for the last six weeks and could break down in the second quarter, exposing downside into the upper 30s.
Catch up on the latest price action with our new ETF performance breakdown.
Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire