By: Brendan Gilmartin Vice President, Research & Content
Wells Fargo (NYSE:WFC) is slated to report 2Q 2013 earnings before the closing bell on Friday, July 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
- Wells Fargo typically reports a "clean" number for Earnings Per Share that is comparable to consensus estimates. For the 2Q period, the Street is looking for earnings of $0.93 per share (Source: Yahoo! Finance). The range is $0.89 to $0.97.
- On a historical basis, earnings have tended to closely track consensus estimates.
- Revenues are seen coming in roughly flat y/y to $21.2 bln, with some estimates running as high as $21.9 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 25% YTD. Given the recent strength, look for EPS at least at the upper end of the analyst forecast range of $0.89 to $0.96 in order to push the shares higher from here. The average price move off earnings is 3.49%, while the options market is pricing in a reaction of by nearly 3.00%. Last quarter, a slightly lower than expected revenue figure pressured the shares after nearing an all-time high ahead of that report as well.
- Wells Fargo shares are currently trading at 1.5x book value, a slight premium to its rivals: JP Morgan Chase (1.06x), Citigroup (NYSE:C) (0.79x), and Bank of America (NYSE:BAC) (0.66x).
07/01: Keefe, Bruyette & Woods cut Wells Fargo to Market Perform from Outperform after approaching the firm's price target of $43.00, according to a report on TheStreet. The firm also cited a slowdown in refinancing activity and rising long-term rates.
06/14: Sterne Agee downgraded Wells Fargo from Buy to Neutral, based on slower earnings momentum, according to a post on Benzinga.com. The firm attributed the slowdown to the low rate environment and moderating mortgage lending.
04/23: Wells Fargo boosted its stock dividend of $0.30 per share, an increase of 20%, bringing the current yield to 2.85%.
Wells Fargo shares are up about 25% YTD after recently touching an all-time high of $43.08 on July 9. That would be the initial resistance point in the event of a positive surprise. Conversely, there is downside risk to the $41.00-level if results do not sufficiently top estimates, with further downside risk to the 50-Day SMA near $40.00. (Chart courtesy of StockCharts.com)
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 2Q 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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