Wells Fargo & Company (WFC) is a leading financial services company that provides diversified banking, investment, mortgage products and services, and consumer and commercial finance. It operates through four segments: consumer banking and lending; commercial banking; corporate and investment banking; and wealth and investment management. In comparison, Bank of America Corporation (BAC) provides banking and financial products and services for individual consumers, institutional investors, large corporations, and governments worldwide. It operates through the following segments: consumer banking; global wealth & investment management; global banking; and global market segments.

The Federal Reserve announced on July 29 that it plans to keep benchmark interest rates near zero and it has left its bond-buying program unchanged for now. However, rising financial transactions and capital market activities are helping financial sector growth. Furthermore, the Fed has signaled two interest rate hikes as soon as late 2023, which should help financial companies increase their interest income. According to Globe Newswire, the global financial services market is expected to grow at a 9,9% CAGR to hit $22.5 trillion this year. Consequently, both WFC and BAC are expected to benefit in the coming quarters.

WFC’s shares have gained 53.7% over the six months, while BAC’s returned 29.4%. Also, WFC’s 86.4% gains over the past year are significantly higher than BAC’s 54.4% returns. WFC is the clear winner with 114.2% gains versus BAC’s 61.9% in terms of the past nine months’ performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

WFC announced a $0.20 per share quarterly common stock dividend, payable on September 1, 2021, representing a 100% increase from the previous quarterly dividend of $0.10. Furthermore,  the company has consistently paid quarterly dividends for the past 22 years.

On July 21, 2021, BAC announced that its board of directors had declared a regular quarterly cash dividend of $0.21 per share, payable on September 24, up 16.7% from the prior quarter’s dividend. The company has paid dividends each quarter for the past 21 years.

Recent Financial Results

WFC’s net revenue increased 10.8% year-over-year to $20.27 billion for its fiscal second quarter ended June 30, 2021. The company’s net income grew 30.3% sequentially to $6.04 billion, while its EPS came in at $1.38, up 35.3% sequentially.

BAC’s  net revenue decreased 3.6% year-over-year to $21.50 billion for its fiscal second quarter ended June 30, 2021. However, the company’s net income grew 13.6% sequentially to $9.20 billion. Also, its EPS came in at $1.03, up 19.8% sequentially.

Past and Expected Financial Performance

WFC’s total assets grew at a 1.2% CAGR  over the past three years. Analysts expect WFC’s revenue to decrease 0.1% for the quarter ending September 30, 2021, and 1.9% in its fiscal year 2021. However, the company’s EPS is expected to grow 133.3% for the quarter ending September 30, 2021, and 846.3% in fiscal 2021. Moreover, its EPS is expected to grow at a 117.4% rate  per annum over the next five years.

In comparison,  BAC’s total assets grew at a 9.8% CAGR over the past three years. The company’s revenue is expected to increase 4% for the quarter ending September 30, 2021, and 2.7% in its fiscal year 2021. Its EPS is expected to grow 39.2% for the quarter ending September 30, 2021, and 63.1% in its fiscal year 2021. BAC’s EPS is expected to grow at a 24.3% rate per annum over the next five years.

Profitability

BAC’s trailing-12-month revenue is 1.13 times WFC’s. And  BAC is more profitable, with a 31.84% net income margin versus  WFC’s 22.12%.

Furthermore, BAC’s 0.96% ROA is slightly higher than WFC’s 0.92%.

Valuation

In terms of forward non-GAAP PEG, WFC is currently trading at 0.85x, which is higher than BAC’s 0.64x. However, BAC’s 12.19x forward non-GAAP P/E ratio  is 6.9% higher than WFC’s 11.4x.

POWR Ratings

WFC has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast, BAC has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Both WFC and BAC have a B grade  for Sentiment, in sync with favorable analyst sentiment.

WFC also has a grade of B for Growth, which is consistent with analysts’ expectations that its EPS will increase significantly in the coming months. In comparison,  BAC has a Growth grade of C, which is consistent with analysts’ expectations that its EPS will increase in the near term but at a modest rate.

Of the 11 stocks in the Money Center Banks industry, WFC is ranked #1, while BAC is ranked #8.

Beyond what we’ve stated above, we have also rated both the stocks for Stability, Momentum, Quality, and Value. Click here to view all the WFC ratings. Also, get all the BAC ratings here.

The Winner

With increasing financial transactions, the financial sector is expected to grow in the near term. While both WFC and BAC are expected to gain in the long run, we think it is better to bet on WFC now because of its better financials and significantly higher growth estimates.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Money Center Banks industry here.

WFC shares were trading at $46.11 per share on Monday afternoon, up $0.17 (+0.37%). Year-to-date, WFC has gained 53.60%, versus a 18.12% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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