Spekulatius Posted November 16, 2018 Share Posted November 16, 2018 Any ideas why they are doing this? Wells Fargo Wants a Bigger Down Payment on That House in Greenwich https://finance.yahoo.com/news/wells-fargo-wants-bigger-down-100000466.html Well they are obviously concerned about credit risk with jumbo mortgages. It shows that they do their own thinking, for the better or the worse. Link to comment Share on other sites More sharing options...
Cigarbutt Posted December 5, 2018 Share Posted December 5, 2018 Thought the following was helpful: https://markets.on.nytimes.com/research/stocks/news/press_release.asp?docTag=201811201630BIZWIRE_USPRX____BW5741&feedID=600&press_symbol=284853 Use the link: https://cc.talkpoint.com/gold006/120418a_as/?entity=25_5TQY87E Opinion: WFC is slowly going back to its long term potential. It doesn't mean it will be a straight line though. Link to comment Share on other sites More sharing options...
Viking Posted December 5, 2018 Author Share Posted December 5, 2018 Cigarbutt, thanks for posting. I wonder if WFC has not turned the corner. They look to have a couple of nice catalysts moving forward. I like that they are publishing hard expense targets for each of the next couple of years. One wild card will be the Democrats when they get going in the House in the new year... i think they are going to try and score points by going after a few of the big banks and WFC remains an easy target; although Goldman might be a more popular pick. Link to comment Share on other sites More sharing options...
Rasputin Posted December 9, 2018 Share Posted December 9, 2018 From Q3 18 10-Q "As of the close of business on October 29, 2018, 110,646 unexercised warrants expired, and the holders of the unexercised warrants are no longer entitled to receive any shares of our common stock." saves us couple million bucks lol...weird Link to comment Share on other sites More sharing options...
ander Posted December 10, 2018 Share Posted December 10, 2018 It's been some time since someone has made the investment / valuation case on buying WFC here. I was wondering if anyone could share their thoughts re: the buy case today and estimate of intrinsic value today. Thanks. Link to comment Share on other sites More sharing options...
Dalal.Holdings Posted December 10, 2018 Share Posted December 10, 2018 The buy case looks fantastic...buy WFC for the same price as in early 2014, but with fewer shares outstanding and a higher dividend. If interest rates rise, it looks even better in the long term. Link to comment Share on other sites More sharing options...
sleepydragon Posted December 10, 2018 Share Posted December 10, 2018 remind me a couple years ago when AXP got into trouble with Costco. Stock was at 50ish. I bought as much as I could. It's now doubled. AXP is similar to WFC in that Buffett would like to buy more but couldn't due to 10% limits. Link to comment Share on other sites More sharing options...
rb Posted December 10, 2018 Share Posted December 10, 2018 Well at Wells non interest expenses are already going down (they're guided to go down even more). So pretax is gonna go back over 30 Bn. So Let's say 30 Bn pretax. Figure a tax rate of what? 24%? Then after tax income is $22.8 Bn. Plug into a simple DDM with r=9% and g=4% and you get a value of $474 Bn. Let's ding them 10% cause they've been naughty, new we're down to 427 Bn. Take out 24 Bn of preferreds and you get a $403 billion valuation against a 230 Billion market cap. Not bad! Add to this that these guys have been buying back stock like it's going out of style. $13.3 Bn YTD up almost 100% YoY. $7Bn last quarter alone. If the stock says at these prices for an extended period these buybacks are gonna get seriously accretive. We may consider writing Janet Yellen a thank-you note. Link to comment Share on other sites More sharing options...
gary17 Posted December 11, 2018 Share Posted December 11, 2018 RB, what's the equation for your model. Sorry , didn't go to business school. What's the assumption behind the 9% . What would you get in case of JPM and BAC? Link to comment Share on other sites More sharing options...
khturbo Posted December 11, 2018 Share Posted December 11, 2018 Well at Wells non interest expenses are already going down (they're guided to go down even more). So pretax is gonna go back over 30 Bn. So Let's say 30 Bn pretax. Figure a tax rate of what? 24%? Then after tax income is $22.8 Bn. Plug into a simple DDM with r=9% and g=4% and you get a value of $474 Bn. Let's ding them 10% cause they've been naughty, new we're down to 427 Bn. Take out 24 Bn of preferreds and you get a $403 billion valuation against a 230 Billion market cap. Not bad! Add to this that these guys have been buying back stock like it's going out of style. $13.3 Bn YTD up almost 100% YoY. $7Bn last quarter alone. If the stock says at these prices for an extended period these buybacks are gonna get seriously accretive. We may consider writing Janet Yellen a thank-you note. Although I agree the stock is cheap, your numbers look a bit funny here. You seem to be ignoring equity needed to fund growth, no? If I'm assuming 15% ROTE then you'd need to retain .04/.15 = ~26% of earnings to fund the 4% growth. Or are you assuming that they can grow on a stagnant equity base? If you used your discount assumptions with expanding equity you'd still get a fair value of ~$70 or so. Link to comment Share on other sites More sharing options...
khturbo Posted December 11, 2018 Share Posted December 11, 2018 RB, what's the equation for your model. Sorry , didn't go to business school. What's the assumption behind the 9% . What would you get in case of JPM and BAC? DDM is the dividend discount model. It's a valuation model defined as the following: free cash flow / (discount rate - perpetual growth rate) It's mathematically equivalent to a normal DCF if the growth is the same across all periods. With those inputs of 9% discount rate and 4% perpetual growth rate you'd divide by .05 which is the same as saying 20x free cash flow / owner's earnings. Link to comment Share on other sites More sharing options...
rb Posted December 11, 2018 Share Posted December 11, 2018 RB, what's the equation for your model. Sorry , didn't go to business school. What's the assumption behind the 9% . What would you get in case of JPM and BAC? DDM is the dividend discount model. It's a valuation model defined as the following: free cash flow / (discount rate - perpetual growth rate) It's mathematically equivalent to a normal DCF if the growth is the same across all periods. With those inputs of 9% discount rate and 4% perpetual growth rate you'd divide by .05 which is the same as saying 20x free cash flow / owner's earnings. Gary, let me expand a bit on what khturbo said. Yes the DDM is the dividend discount model. The formula is P=D*(1+g)/(r-g). Where P is the price, D=dividend, g=perpetual growth rate, and r=required rate of return. You can replace the dividend with owner earnings or div+buybacks or something like that. If you haven't gone to business school, the DDM is a very quick DCF. If you're into investing you should learn it. If you went to a technical school, you'll recognize very quickly that it's a geometric progression. Link to comment Share on other sites More sharing options...
gary17 Posted December 11, 2018 Share Posted December 11, 2018 RB, what's the equation for your model. Sorry , didn't go to business school. What's the assumption behind the 9% . What would you get in case of JPM and BAC? DDM is the dividend discount model. It's a valuation model defined as the following: free cash flow / (discount rate - perpetual growth rate) It's mathematically equivalent to a normal DCF if the growth is the same across all periods. With those inputs of 9% discount rate and 4% perpetual growth rate you'd divide by .05 which is the same as saying 20x free cash flow / owner's earnings. Gary, let me expand a bit on what khturbo said. Yes the DDM is the dividend discount model. The formula is P=D*(1+g)/(r-g). Where P is the price, D=dividend, g=perpetual growth rate, and r=required rate of return. You can replace the dividend with owner earnings or div+buybacks or something like that. If you haven't gone to business school, the DDM is a very quick DCF. If you're into investing you should learn it. If you went to a technical school, you'll recognize very quickly that it's a geometric progression. Thanks. Yes my background is in engineering. I guess with any model it’s garbage in , garbage out... g=4% is that reasonable r= 9% seems high given the inflation is targeting 2%? Link to comment Share on other sites More sharing options...
rb Posted December 11, 2018 Share Posted December 11, 2018 I agree r at 9% is high. 8% is probably more appropriate. I was trying to be conservative when i did the thing. You lower r, P goes up. Link to comment Share on other sites More sharing options...
Spekulatius Posted December 11, 2018 Share Posted December 11, 2018 I agree r at 9% is high. 8% is probably more appropriate. I was trying to be conservative when i did the thing. You lower r, P goes up. If you use these formulas , everything will look cheap. Link to comment Share on other sites More sharing options...
rb Posted December 11, 2018 Share Posted December 11, 2018 I agree r at 9% is high. 8% is probably more appropriate. I was trying to be conservative when i did the thing. You lower r, P goes up. If you use these formulas , everything will look cheap. Great! Explain to me where I'm going wrong? Is g wrong when long run nominal GDP growth is gonna be somewhere around 4%. Or is r wrong at 9% when you have the 10 year Treasury at 2.85? What should the right numbers be? Link to comment Share on other sites More sharing options...
Spekulatius Posted December 11, 2018 Share Posted December 11, 2018 I agree r at 9% is high. 8% is probably more appropriate. I was trying to be conservative when i did the thing. You lower r, P goes up. If you use these formulas , everything will look cheap. Great! Explain to me where I'm going wrong? Is g wrong when long run nominal GDP growth is gonna be somewhere around 4%. Or is r wrong at 9% when you have the 10 year Treasury at 2.85? What should the right numbers be? The model is correct, but almost any dividend stock will look cheap when you plug it in the model. the question then become is WFC cheaper than others? The biggest issue is longevity of growth. Very often, something bad happens and growth is reset, dividends are cut etc. If the assumption regarding longevity of growth is correct, almost any stock will look cheap. Link to comment Share on other sites More sharing options...
rb Posted December 11, 2018 Share Posted December 11, 2018 Well to start with you plug in the numbers in and look at what looks cheap. Not so many things do, despite what you think. Otherwise I'd be out there buying up a storm. One reason WFC looks good, is because, well... it's a good bank. But banks look pretty good these days. One reason they do, they're cheap. Also as I've mentioned before, they don't have a lot of depreciable assets. Bank assets in the US are in really good shape these days. Household debt levels at good as well overall. So do you want to buy Wells at 7x pretax or would you rather buy Honeywell at 13x pretax? Link to comment Share on other sites More sharing options...
rb Posted December 11, 2018 Share Posted December 11, 2018 The required capital ratio is included in the fact that they are well over it as are pretty much all the majours, not just Wells. How would you value financials on the back of an envelope? What's your valuation for the thing? Is it overvalued? How are they not still top of the line? Are they under-earning on their assets? Do they have a pile of overvalued assets that are sucking wind? Please point me in the right direction cause I would really like to know where I am really wrong here. Link to comment Share on other sites More sharing options...
mwtorock Posted December 11, 2018 Share Posted December 11, 2018 remind me a couple years ago when AXP got into trouble with Costco. Stock was at 50ish. I bought as much as I could. It's now doubled. AXP is similar to WFC in that Buffett would like to buy more but couldn't due to 10% limits. Charlie said wfc is probably even in better position than before, and it is one of the holdings he has in Daily Journal. Link to comment Share on other sites More sharing options...
Rasputin Posted December 11, 2018 Share Posted December 11, 2018 wfc is daily journal's largest holding, mine too as of yesterday. Link to comment Share on other sites More sharing options...
JBTC Posted December 11, 2018 Share Posted December 11, 2018 The buy case looks fantastic...buy WFC for the same price as in early 2014, but with fewer shares outstanding and a higher dividend. If interest rates rise, it looks even better in the long term. Earnings per share didn't seem to grow much over the past 4 years - why should the stock go up? Link to comment Share on other sites More sharing options...
Rasputin Posted December 11, 2018 Share Posted December 11, 2018 Yes, reported annual eps has been around $4 since 2014, and I have them at $4.25 for 2018. But that's the past, and reported eps is just the beginning. I go through each line item on both revenue side and expense side, and try to figure out where reported eps is going over the next 5 years. Based on what I see, and my experience going through much worse problems at BAC, I'm satisfied that reported eps in in 5 years will be far higher than 2018. Link to comment Share on other sites More sharing options...
mcliu Posted December 11, 2018 Share Posted December 11, 2018 How do you guys choose which banks to invest in given that they're all trading at pretty low valuation? JPM, BAC, WFC, C? Or even GS and MS? Link to comment Share on other sites More sharing options...
Gregmal Posted December 11, 2018 Share Posted December 11, 2018 How do you guys choose which banks to invest in given that they're all trading at pretty low valuation? JPM, BAC, WFC, C? Or even GS and MS? Just look at what Berkshire owns... Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now