Can Wells Fargo Deliver The Goods On Its Earnings?

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Wells Fargo & Co. (NYSE: WFC) may be the favorite bank stock and largest holding of Warren Buffett, but the banking giant is going to kick off earnings season for the financial stocks Friday morning. The company is expected to report its fiscal second-quarter earnings before the market opens.

Thomson Reuters has the consensus estimates at $1.01 in earnings per share (up from $0.98 a year ago) on a 2.6% decline in revenue to $20.82 billion. Wells Fargo and other banks almost never give real guidance, but for 2014 the estimates are $4.11 in earnings per share (versus $3.89 in 2013) and revenue is expected to be flat at $83.82 billion.

That decline is expected to be more tied to a slower mortgage market by our take. After all, Wells Fargo has been less involved in raw profit-center trading compared to other banking giants and much heavier in mortgage origination. Still, a strong underwriting climate from investment banking fees should be somewhat of a boost for the bank.

We would point out that Wells Fargo’s stock is up almost 17% so far in 2014 and is up 25% from a year ago. That is after an 8% rise over the past quarter or so. That being said, the current $52.25 price level compares to a 52-week and all-time high of $53.08, as well as to a consensus analyst price target from Thomson Reuters of about $53.25. It may seem fully valued in that light, and trading at 12.7 times expected earnings is not cheap for a bank. Still, the top analyst price targets on Wells Fargo are $60 and higher.

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Wells Fargo is also the richest valued bank in book value, compared to peers, trading at 1.74 times stated book value. Still, Wells Fargo will be the loosely regulated bank when it comes to capital returns for its shareholders — why the bank promised more buybacks and dividend hikes ahead! This is also where we showed that there was a hidden $30 billion profit.

While Wells Fargo is so large that it can lead the other financial stocks, it turns out that there is just not a universal directional trend among the “too big to fail” banks and brokerage firms that masquerade as banks. Bank earnings due next week (with Thomson Reuters consensus estimates as of Wednesday) are as follows:

  • J.P. Morgan Chase & Co. (NYSE: JPM) $1.29 EPS and $23.73 billion in revenue
  • Bank of America Corp. (NYSE: BAC) $0.29 EPS and $21.68 billion in revenue
  • Citigroup, Inc. (NYSE: C) $1.08 EPS and $18.92 billion in revenue
  • Goldman Sachs Group Inc. (NYSE: GS) $3.09 EPS and $7.98 billion in revenue

One last note on Wells Fargo as a stock is simple to see on the charts. Its chart has been signaling resistance at the $53 handle over the past month.

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