DCF Studio

    WFC · NYQ · Financial Services

    Wells Fargo & Company

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 84.17

    Market price

    USD 86.12

    Implied upside

    -2.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReported capital expenditure averages just 0.00% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 8.79% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 84.17-2.3%
    Exit multiple
    USD 89.21+3.6%
    Market price
    USD 86.12

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn13bn25bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 87.1bnUSD 90.6bnUSD 94.2bnUSD 98.0bnUSD 101.9bn+4.0%
    EBITUSD 23.0bnUSD 23.9bnUSD 24.9bnUSD 25.9bnUSD 26.9bn+4.0%
    NOPATUSD 19.7bnUSD 20.5bnUSD 21.3bnUSD 22.1bnUSD 23.0bn+4.0%
    Add depreciation & amortisationUSD 7.7bnUSD 8.0bnUSD 8.3bnUSD 8.6bnUSD 9.0bn+4.0%
    Less capital expenditureUSD -7.7bnUSD -8.0bnUSD -8.3bnUSD -8.6bnUSD -9.0bn+4.0%
    Less increase in working capitalUSD 2.0bnUSD 2.1bnUSD 2.2bnUSD 2.3bnUSD 2.4bn-4.0%
    Free cashflow to firmUSD 21.7bnUSD 22.6bnUSD 23.5bnUSD 24.4bnUSD 25.4bn+4.0%
    Discount factor0.96050.88610.81740.75410.6956-
    Present valueUSD 20.9bnUSD 20.0bnUSD 19.2bnUSD 18.4bnUSD 17.7bn-4.0%
    Present Value Of The ForecastUSD 96.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.944Reported 0.916, pulled toward 1.0 (Blume)
    Cost of equity10.19%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 21.6% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationUSD 260.4bn57.4% of capital
    Total debtUSD 193.0bn42.6% of capital, book value as a proxy
    Tax rate14.5%Effective, capped at statutory
    WACC8.40%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 84.17

    67% of EV

    Forecast FCFF, final year
    USD 25.4bn
    Capex at depreciation, working capital in reinvestment
    USD 23.0bn
    Less reinvestment at g/ROIC (29.8% of NOPAT)
    USD -6.9bn
    Capitalised
    USD 16.2bn
    ROIC (WACC floor)
    8.4%
    Terminal value, undiscounted
    USD 281.1bn
    Terminal value, discounted
    USD 195.6bn
    Enterprise value
    USD 291.7bn
    Less net debt
    USD 18.8bn
    Equity value
    USD 272.9bn

    Exit at 8.5x EBITDA

    Value per shareUSD 89.21

    69% of EV

    Terminal value, undiscounted
    USD 304.6bn
    Terminal value, discounted
    USD 211.9bn
    Enterprise value
    USD 308.1bn
    Less net debt
    USD 18.8bn
    Equity value
    USD 289.2bn

    Spread between methods: 6%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.40%110.48110.90111.32111.74112.16
    7.40%95.2295.5795.9196.2696.61
    8.40%83.5883.8884.1784.4784.76
    9.40%74.4274.6774.9275.1875.43
    10.40%67.0167.2367.4567.6767.89

    Outlined: this model. Green text: above today's price of 86.12. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year4.0%4.5%+0.4pp
    EBIT margin26.4%27.0%+0.6pp
    Discount rate8.4%8.2%-0.2pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.