Wells Fargo Earnings Preview: Marginal Revenue Growth Expected

by Shelton on December 2nd, 2014

filed under Online Business Credit

Investors will be looking for Wells Fargo to add to its 11
consecutive quarters of profit growth, despite the uncertainty
surrounding the fiscal cliff that plagued the most recent
quarter.

Expectations

Analysts on average predict that Wells Fargo will report revenue
for the quarter that rose more than three percent year-over-year to
$21.29 billion. However, per-share earnings are expected to come to
$0.89, which would be about 18 percent higher than in the same
quarter of last year. That consensus earnings estimate is the same
as it was 60 days ago. But analysts have underestimated earnings
per share (
EPS

) in all but one of the past seven quarters. The third-quarter EPS
of $0.88 beat the consensus estimate by a penny.

Wells Fargo attributed the record third-quarter earnings to the
boom in its mortgage lending business, which it said would likely
last a few more quarters. But revenue came in below projections as
the net interest margins shrank. The share price rose marginally in
the week following the third-quarter report.

The analysts consensus full-year forecast calls for $3.34 per
share earnings on revenue of $85.68 billion. That would be up from
$2.82 per share and $80.95 billion in the previous year. That
consensus EPS estimate has slipped in the past 60 days from
$3.35.

The Company

Wells Fargo amp; Company is the second largest bank in the
United States in deposits and the largest money center bank by
market capitalization, which is nearly $184 billion. It has about
9,000 locations in 35 countries. This Samp;P 500 component was
founded in 1852 and is headquartered in San Francisco. John Stumpf
has been the chief executive since June 2007 and chairman since
January 2010.

Competitors include Bank of America (NYSE:
BAC

), Citigroup (NYSE:
C

) and JP Morgan Chase (NYSE:
JPM

). All three are scheduled to report their four-quarter results
next week. Analysts predict the latter two will post strong
results, while Bank of America is expected to report smaller EPS
and revenue relative to the previous year.

During the three months that ended in December, Wells Fargo
elected a new board member, launched a new online Business Credit
Center for small business owners, increased its share buyback
program and approved a record amount in SBA loans.

Performance

Wells Fargos long-term EPS growth forecast is about nine
percent, and the price-to-earnings (P/E) ratio is less than the
industry average. The operating margin is greater than the industry
average, and the return on equity is better than those of the
competitors mentioned above. The number of shares sold short
represents less than one percent of the float. The short interest
has been dwindling since October.

Of the 36 analysts surveyed by Thomson/First Call who follow the
stock, 21 recommend buying shares and only one recommends selling.
The analysts believe the stock has some room to run as their mean
price target represents about 10 percent potential upside. That
target price is a level the stock has not seen since 2008.

Shares have traded mostly between $32 and $36 since March.
However, the share price is more than 18 percent higher than a year
ago. It is about four percent above both the 50-day and 200-day
moving averages. Over the past six months, the stock has
underperformed the competitors mentioned previously, as well as the
Samp;P 500.

ACTION ITEMS

Bullish: Investors interested in exchange traded funds invested
in Wells Fargo might want to consider the following trades:

iShares Samp;P Global Financials (NYSE:
IXG

) is more than 29 percent higher than a year ago. iShares Dow Jones
US Financial Sector (NYSE:
IYF

) is almost 25 percent higher than a year ago. iShares Russell 1000
Value Index (NYSE:
IWD

) is about 15 percent higher than a year ago.

Bearish: Traders may prefer to consider these alternative
positions in the same industry:

Bank of America (NYSE:
BAC

) is up about 91 percent in the past year. Citigroup (NYSE:
C

) is up about 46 percent in the past year. JP Morgan (NYSE:
JPM

) is up almost 29 percent in the past year.

(c) 2013 Benzinga.com. Benzinga does not provide investment advice.
All rights reserved.

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