One of the best ways to measure the health of the American economy is to examine the financial numbers of monster banks such as Wells Fargo (WFC).
Wells Fargo is an excellent barometer for the US economy because it is America’s third largest bank. Wells Fargo & Co (NYSE: WFC) claims to operate over 13,000 and over 7,200 branches in the United States. Arrogantly, Wells Fargo claims to have $1.9 trillion in assets and serve one-in-three US households and over 10% of American middle-market companies and small businesses.*
Thus, Wells Fargo serves middle America and ordinary Americans. If ordinary Americans suffer, Wells Fargo suffers. So how is Wells Fargo doing? After all, many Americans are suffering because of the COVID-19 pandemic and economic downturn.
Is Wells Fargo Making Money?
Wells Fargo (NYSE: WFC) made more money while experiencing revenue shrinkage during the pandemic.
Notably, Wells Fargo’s quarterly revenues and quarterly gross profit grew from $17.826 billion on 30 June 2020 to $20.270 billion on 30 June 2021. Note: at Wells Fargo, the revenues and the gross profit are the same number.
Impressively, Wells Fargo’s quarterly operating income rose from -$6.249 billion on 30 June 2020 to $8.185 billion on 30 June 2021. Hence, Wells Fargo’s quarterly operating revenue grew by $14.434 billion in year.
Conversely, Stockrow data shows Wells Fargo’s revenue growth shrunk for seven quarters. For example, Stockrow estimates Wells Fargo’s revenues shrank by -8.75% in the quarter ending on 30 June 2021. Conversely, the revenue growth rate rose from -14.66% on 31 March 2021 and -16.09% on 31 June 2020.
How Much Cash does Wells Fargo Generate?
Unfortunately, no cash flow numbers for Wells Fargo & Co (WFC) were available on 30 June 2021. However, Wells Fargo generated enormous amounts of cash in the preceding quarter.
For instance, Wells Fargo reported a quarterly operating cash flow of $5.830 billion, a quarterly investing cash flow of $6.197 billion, and a quarterly financing cash flow $10.094 billion on 31 March 2021. Impressively Wells Fargo reported a quarterly ending cash flow of $286.733 billion on 31 March 2021.
Conversely, the quarterly operating cash flow fell from $17.273 billion on 31 March 2020, investing cash flow rose from -$44.303 billion on 31 March 2020, and the quarterly financing cash flow fell from $36.589 billion on 31 March 2020. Notably, the quarterly ending cash flow rose from $150.809 billion on 31 March 2021.
Finally, Wells Fargo had $427.049 billion in cash and short-term investments on 30 June 2021. The cash and short-term investments grew from $416.471 billion on 31 June 2020.
Will there be a Post-Pandemic Boom?
Consequently, Wells Fargo (WFC) completed the pandemic with an enormous amount of cash. Hence, I surmise ordinary Americans survived the pandemic with enormous amounts of cash.
Similarly, Congress is pumping $1.9 trillion into the economy through spending and tax credits. In particular, 35 million families could receive $250 to $300 a month per child in child tax credits. The child tax credits are monthly cash payments the Internal Revenue Service (IRS) sends to individual bank accounts. Families that make less than $150,000 a year will receive the credits, the AP reports.
Therefore, I expect a post-pandemic boom as people and businesses spend all that cash. Moreover, many of these people and businesses will leverage that cash by borrowing against it. Hence they will pump more money into the economy and drive the boom.
Wells Fargo could make money from that boom because people and businesses will run more money through their bank accounts. In addition, people will have more money spend on mortgages and loans.
So yes, there will be a post-pandemic boom and Wells Fargo could profit from that boom.
What Value Does Wells Fargo (WFC) have?
Wells Fargo (NYSE: WFC) had $1.96 trillion in Total assets and a Total Debt of $225.291 billion on 30 June 2021. Those numbers shrank from $1.981 trillion in total assets and $353.785 billion in total debt on 30 June 2020.
Thus Wells Fargo lost value but made more money during the pandemic. Notably, Wells Fargo finished the pandemic with less debt.
Plus, Wells Fargo gained share value during the pandemic. Mr. Market paid $26.26 for WFC on 24 July 2020. In comparison, Mr. Market paid $45.14 for Wells Fargo on 27 July 2021. Hence, Wells Fargo’s share price is growing but its stock is cheap. I think Mr. Market undervalues Wells Fargo.
Additionally, Wells Fargo paid a 10¢ quarterly dividend on 6 May 2021. quarterly dividend fell from 51¢ on 7 May 2020. Overall, Wells Fargo offered a 40¢ last-twelve-months (LTM) dividend and a 0.90% dividend yield on 27 July 2021.
Consequently, I consider Wells Fargo a cheap value investment with a high margin of safety. Wells Fargo has a high margin of safety because of all the cash and the dividend. Additionally, I expect Wells Fargo to grow which adds safety. If you are seeking a cheap and safe dividend stock that will grow, Wells Fargo deserves a look.