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Jim Cramer calls Wells Fargo’s valuation multiple “a mistake”
Wells Fargo shares trade at a forward price-to-earnings multiple of 12.1, after the bank reported $22.6 billion in revenue and $2.00 per share for the latest quarter.
Jim Cramer said Wells Fargo & Company’s valuation multiple is too low, arguing that the market is treating the bank primarily as a turnaround rather than reflecting a higher earnings or growth outlook. In a Tuesday appearance on CNBC’s Squawk on the Street, the CNBC host pointed to Wells Fargo CEO Charlie Scharf’s efforts to execute the long-term turnaround and to support the stock through share buybacks.
Cramer focused on the idea that Scharf is effectively “not happy” with the current multiple, while claiming that investors are overlooking moves at the bank, including staffing and activity in areas such as investment banking and M&A. The segment ties to the broader theme that banking stocks are trading at low multiples this year.
According to Yahoo Finance data cited in the piece, Wells Fargo is trading at a forward price-to-earnings multiple of 12.09, slightly below the Money Center Banks’ multiple of 13.04 cited from Aswath Damodaran. The article also notes that Wells Fargo reported second quarter results on July 14, posting $22.62 billion in revenue and $2.00 in earnings per share, beating analyst estimates of $1.72.
The report also describes the turnaround context, saying Wells Fargo is repairing trust issues and emerging from the elimination of an asset cap enforced by the Federal Reserve, while exiting non-core businesses over time. It lists prior sales of assets including a rail equipment lease business, mortgage servicing unit, auto finance division, and private equity investments.