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By: Brendan Gilmartin, VP Research & Content

Wells Fargo (NYSE:WFC) is slated to report 1Q 2013 earnings before the closing bell on Friday, April 12. The results are typically released at 8:00 a.m. EST and will follow with a conference call at 10:00 a.m. Wells Fargo's results will be reported an hour after JP Morgan Chase (NYSE:JPM) posts its quarterly numbers for the same period.

Outliers & Strategy

  • For the 4Q period, the Street is looking for earnings of $0.88 per share (Source: Yahoo! Finance). The range is $0.76 to $0.94.
  • On a historical basis, earnings have tended to closely track consensus estimates.
  • Revenues are seen coming in roughly flat y/y to $21.6 bln, with some estimates running as high as $22.08 bln.
  • Both underlying banking shares and broad market measures such as the S&P E-Mini Index Futures and Financial ETF (NYSEARCA:XLF) could be influenced by the Wells Fargo report. Others: Direxion Daily Financial Bull 3X Shares (NYSEARCA:FAS) & Bear 3X Shares (NYSEARCA:FAZ).
  • Wells Fargo shares are up nearly 9% YTD. Given the recent strength, look for EPS at least at the upper end of the analyst forecast range of $0.76 to $0.94 in order to push the shares higher from here.
  • Earlier this quarter, Wells Fargo announced plans to up its quarterly common stock dividend to $0.30 per share, bringing the yield to well over 3%, even after the recent run-up in the shares.
  • Wells Fargo shares are currently trading at 1.25x book value, a slight premium to its rivals: JP Morgan Chase (0.91x), Citigroup (NYSE:C) (0.70x), and Bank of America (NYSE:BAC) (0.56x).


Recent News

  • 04/05: According to a post on TheStreet.com, JP Morgan Chase Analysts believe Wells Fargo faces a steep decline in mortgage origination income, offset by steep expense declines.
  • 03/14: Wells Fargo announced the Fed approved the firm's 2013 Capital Plan and calling for a dividend rate of $0.30 per share for the second quarter of 2013, and an increase in common stock repurchase activity for 2013 compared with 2012.
  • 03/14: BMO Capital Markets initiated coverage on Wells Fargo with a Market Perform rating and a price target of $40.00, according to a post on Benzinga.com. On one hand, the firm noted the banks strong market share position, offset by weaker mortgaging banking revenues, lower net interest income, and decreased loan growth.
  • 02/21: Berkshire Hathaway boosted its stake in Wells Fargo for the recent quarter by 17.3 million shares, bringing total holdings to 439.8 million shares, or 8.9% of the outstanding issuance.
  • 02/11: Stifel Nicolaus upgraded Wells Fargo from Hold to a Buy rating with a price target of $42, according to The Dividend Daily, citing the bank's strong management team, profitability, and high-quality franchise.

Technical Review

Wells Fargo shares are up more than 9% YTD after recently touching the highest level since 2008. The recent high at $38.20 (March 20) would be the initial resistance point in the event of a positive surprise. Conversely, support is at $36.50, with downside risk to the 50-Day SMA near $36.00 should results fail to meet forecasts. (Chart courtesy of StockCharts.com)

Summary

Wells Fargo shares have been rallying in recent months, benefiting from a pickup in lending activity, healthier net interest margins, an improving economic backdrop in North America, and the housing market recovery. With that being said, the bar is set fairly high in advance of the 1Q 2012 earnings release, implying Wells Fargo needs to deliver earnings at or above the upper end of the forecasted range to maintain the positive trajectory.

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Source: Wells Fargo Earnings On Friday To Offer Clues On The Health Of The Mortgage Market