Wells Fargo Stock Falls Despite Q2 Beat: Buy, Sell or Hold?

The outside of a Wells Fargo bank in the sunshine. — (Image credit: Getty Images)

Wells Fargo (WFC) stock is down more than 6% at the start of trading Friday after the banking giant beat analysts’ expectations on the top and bottom lines for its second quarter, but its net interest income, a key metric for banks, failed to meet expectations.

In the quarter ended June 30, Wells Fargo’s revenue increased 0.8% year-over-year to $20.7 billion despite a 9.4% year-over-year decline in net interest income to $11.9 billion. Its earnings per share (EPS) increased 6.4% to $1.33 from the year-ago period.

“Our efforts to transform Wells Fargo were reflected in our second quarter financial performance as diluted earnings per common share grew from both the first quarter and a year ago,” Wells Fargo CEO Charlie Scharf said in a statement.

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Wells Fargo Q2 earnings report

The headline results beat analysts’ expectations. Wall Street was anticipating revenue of $20.3 billion and earnings of $1.29 per share, according to CNBC. However, the reported $11.9 billion in net interest income came in well below the $12.1 billion analysts were expecting.

“We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” Scharf said. “The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading, and investment banking fees.”

Wells Fargo also said it repurchased over $12 billion of common stock during the first half of the year and reiterated its expectation of a 14% dividend increase in the third quarter, which it first announced in late June following the release of the Federal Reserve’s stress test results. Stock buybacks can boost value for shareholders.

JP Morgan Chase (JPM) and Citigroup (C) reported earnings this morning as well, as the start of a busy earnings calendar for this season.

JP Morgan reported revenue of $51 billion and earnings of $4.40 per share, topping expectations of revenue of $49.9 billion and earnings of $4.19 per share. Citigroup also reported a beat with revenue of $20.1 billion and EPS of $1.52 versus expectations of revenue of $20.07 billion and earnings of $1.39 per share.

Is Wells Fargo stock a buy, sell or hold?

Wall Street is bullish on the bank stock. According to S&P Global Market Intelligence, the average analyst target price for WFC stock is $64.16, representing implied upside of more than 14% to current levels. Additionally, the consensus recommendation is a Buy.

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Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.