SAN FRANCISCO, CA – A deep dive into Wells Fargo & Company (WFC) using Buffett-Inspired and McGrew Valuation Methods suggests that the financial services giant, trading at a recent closing price of $83.60 , is significantly overvalued, with an estimated intrinsic value of $36.73 per share. This assessment comes from an analysis based on financial data from Wells Fargo’s quarterly reports for the trailing 12-month (TTM) period ending March 31, 2025.
The valuation employed methods specifically designed for financial services companies, which utilize Distributable Earnings rather than Free Cash Flow (FCF). Key financial metrics used in the analysis include 3,261,676,266 shares outstanding as of March 31, 2025 , and TTM Net Income of $19,997,000,000.
Distributable Earnings for WFC were calculated by adding non-cash charges like depreciation and amortization to net income , totaling $27,594,000,000 for the TTM period. The analysis also calculated a 3-5 year Compound Annual Growth Rate (CAGR) of Distributable Earnings to be approximately 5.25%. Due to this CAGR being less than or equal to 10%, WFC was classified as a non-growth stock, leading to the use of a conservative 3% constant growth rate for both valuation models.
Net Debt, a crucial component for financial services valuations, was calculated as Total Debt minus Cash and Cash Equivalents , resulting in $11,046,000,000. It was noted that the absence of data on Restricted Cash may have led to an overestimation of Net Debt.
Both the Buffett-Inspired and McGrew Valuation Methods, using a 3% constant growth rate, an 8% discount rate, and a 2.5% perpetual growth rate , arrived at an identical intrinsic value of $36.73 per share for WFC. When applying a 25% margin of safety, the price for a compelling investment drops to $27.55 per share.
Comparing the current closing price of $83.60 to the intrinsic value of $36.73 reveals that WFC is overvalued by approximately 127.61%. This significant difference suggests the market might be factoring in optimistic future growth or other elements not accounted for in the conservative growth assumptions of the models. The consistent results from both valuation methods further solidify this conclusion.
In terms of profitability and efficiency, Wells Fargo’s TTM Return on Equity (ROE) was calculated at approximately 11.11%. This indicates solid profitability, though it’s moderate compared to high-growth financial firms. The TTM Return on Net Tangible Assets (RONTA) was higher at approximately 13.59%. The higher RONTA suggests efficient use of tangible assets , which is particularly important for banks that often carry significant intangible assets like goodwill. These metrics align with WFC’s classification as a mature bank with consistent earnings but constrained by regulatory and operational challenges.
It is important to acknowledge certain limitations in the analysis. The unavailability of data for “Increase in Regulatory Capital Required for Growth” and “Restricted Cash” necessitated assumptions of zero for these items, which could potentially impact the accuracy of Distributable Earnings and Net Debt calculations. Additionally, the CAGR calculation was limited to two data points (2020 and 2025), which might not fully capture broader growth trends. The conservative growth rates used in the valuation models may also not fully reflect current market expectations or specific sector dynamics like interest rate changes.
Based on this analysis, investors are advised to approach Wells Fargo cautiously given the potential for overvaluation. While the company demonstrates stable profitability, its current market price appears to significantly exceed its calculated intrinsic value, making it potentially less appealing for value investors who prioritize a margin of safety. Future opportunities may arise with price corrections or improvements in growth prospects.