Wells Fargo & Co (WFC): What’s This Stock Really Worth?

With that information in hand, valuing the company’s stock becomes a spreadsheet exercise. For this example, we’ll use a three-stage discounted earnings calculation. For the first five-year stage, we’ll assume the company grows at that 7.22% analyst estimated rate. For the second five-year stage, we’ll assume the company grows at a lower rate of 5%, and for the third (perpetual) stage, we’ll assume it grows forever at around 3% — about in line with long-run inflation.

Plugging those values into a discounted earnings spreadsheet produces these results:

Source: Author’s calculations, based on inputs from Wells Fargo & Co (NYSE:WFC)’s 8-K earnings release filing from July 12, 2013, and Yahoo! Finance analyst estimates.

Or in other words, my current best estimate for Wells Fargo & Co (NYSE:WFC) values the company at around $230 billion, slightly above my initial estimate, but just below its recent market capitalization of $235 billion.

So what?
Since the intrinsic value calculation is an estimate and it’s really close to the company’s market capitalization, I don’t currently plan to sell Wells Fargo from the iPIG portfolio based on valuation. But if the market should decide to price Wells Fargo at a substantial premium to that estimate — say at around $280 billion — then I’d consider the sale. On the flip side, should the market put the company on sale — say for closer to $200 billion — I’d consider buying more. As it is, Wells Fargo looks like a hold.

The article What’s This Stock Really Worth? originally appeared on Fool.com.

Fool contributor Chuck Saletta owns shares of Wells Fargo and (NYSE:WFC) has an options position in Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, and Wells Fargo.

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