Wells Fargo's Q4 Earnings: Is the Beat Already Priced In?

The market has already placed a big bet on a strong fourth quarter. Wells Fargo's stock is trading near its 52-week high, having rallied nearly 19% over the past three months. This move signals that optimism is high, and a solid earnings report is likely already priced in. The consensus expectation for the print is a 16.9% year-over-year jump in quarterly earnings to $1.66 per share, with revenue forecast at $21.6 billion. That's a target the market has been steadily raising, with the EPS estimate nudged up in recent weeks.

Yet, this optimism has drawn a skeptical eye from some analysts. Baird recently downgraded the stock to Underperform, arguing that the market's positive sentiment has become too elevated relative to valuation. The firm notes the stock trades at roughly 13.5 times expected 2026 earnings, a multiple it believes already reflects the bank's improved fundamentals and its new medium-term return on equity target. In Baird's view, the good news is in the price. The downgrade, while not a sell recommendation, is a clear warning that further gains may be difficult to come by without a significant beat on these already-high expectations.

The Earnings Reality Check: Beat vs. Guidance

The market has been trained to expect a beat from Wells Fargo. Over the last four quarters, the bank has averaged a 7.51% EPS beat against consensus estimates. This track record sets a high bar for the fourth quarter. A strong print on the top line or bottom line would be a classic "buy the rumor, sell the news" setup if it merely meets the already-elevated expectations. The real test will be in the guidance.

Management's recent announcement of a medium-term ROTCE target of 17%-18% is the new benchmark. This raise from a previous 15% target was a major catalyst for the stock's recent rally. It signals a clear shift from defensive cleanup to offensive growth. However, as Baird's recent downgrade highlights, this ambitious target may already be fully priced into the stock. The firm argues the ROTCE target is "more than priced in" at current levels, with the stock trading at a multiple that already reflects this improved profitability outlook.

The critical question for investors is whether management will now sandbag future earnings to meet this new high bar. Any deviation from the 17%-18% trajectory-whether through a slower-than-expected ramp in net interest income, continued pressure on non-interest revenues, or higher-than-anticipated expenses-could trigger a negative reaction. The stock's recent strength suggests the market is betting on a smooth path to that new target. If the guidance resets expectations downward, even a solid quarterly beat could disappoint. The earnings call will be less about the past quarter and more about the path forward to that 17%-18% ROTCE goal.

Catalysts and Risks: What to Watch

The high-expectation thesis hinges on two key drivers: net interest income and non-interest income. The market will be watching for confirmation that these engines are still firing. Consensus expects net interest income of $12.4 billion and total non-interest income of $9.2 billion for the quarter. A beat on either would reinforce the narrative of a smooth transition to the new ROTCE target. Any sign of a slowdown-whether from margin pressure or softer fee income-would be a red flag.

The stock's recent outperformance relative to its peers is a critical benchmark. Wells Fargo has underperformed rivals like JPMorgan and Citigroup for much of the year, but the recent rally has narrowed that gap. If the earnings call includes a guidance reset that widens the performance divergence, the stock could quickly re-engage with its underperformance trend. The primary risk is that the "sell the news" dynamic plays out. Given the stock's 19% run-up and Baird's view that the ROTCE target is "more than priced in", a report that meets the elevated consensus but fails to deliver a meaningful beat on these key income lines could trigger a swift reversal. The market has already bought the rumor; it will be selling the news if the print doesn't exceed it.