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Summary

  • The financials are predicted to be one of the weaker industries this earnings season, but while most banks are forecast to report earnings downturns, modest growth is still expected from Wells Fargo.
  • Wells Fargo has now matched or beaten the Wall Street consensus 8 quarters in a row.
  • A narrow range of earnings estimates signals more agreement in the market, which could mean less volatility post earnings.

Wells Fargo & Company (WFC) is set to report FQ2 2014 earnings before the market opens on Friday, July 11th. This earnings season is expected to be strong across the board, which may help to explain why stocks are near all time highs, but the banks are certainly an exception to the rule. While most large banks are expected to report earnings contractions this quarter, Wall Street is forecasting that Wells Fargo will increase its FQ2 earnings from 98c per share in FQ2 of last year to $1.01 this period. Wells Fargo has now matched or beaten the Wall Street consensus 8 quarters in a row and contributing analysts on the Estimize.com platform expect the bank to do it again this quarter. In each of those 8 quarters Wells Fargo has reported double digits earnings growth on a year over year basis, however, this quarter the Estimize community expects the growth rate to drop to 6%.

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The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

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(Click Here to see Estimates and Interactive Features for Wells Fargo)

The current Wall Street consensus expectation is for Wells Fargo to report $1.01 EPS and $20.753B revenue while the current Estimize.com consensus from 37 Buy Side and Independent contributing analysts is $1.04 EPS and $20.784B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Wells Fargo to beat the Wall Street earnings consensus by about 3% while reporting just slightly ahead of revenue estimates.

Over the previous 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Wells Fargo’s EPS in each quarter and has been more accurate in predicting revenue 4 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time.

More importantly it does a better job of representing the market’s actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. Here we are seeing a relatively large differential in EPS estimates, but little difference on revenue.

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The distribution of earnings estimates published by analysts on the Estimize.com platform range from 98c to $1.10 per share and from $20.020B to $21.082B in revenues. This quarter we’re seeing a more narrow range of estimates on Wells Fargo compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrow range of earnings estimates signals more agreement in the market, which could mean less volatility post earnings.

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Over the past 3 months the Wall Street EPS consensuses both started and ended the period at $1.01 while the Estimize consensus crept higher from $1.03 to $1.04. Meanwhile the Wall Street revenue forecast fell to a low of $20.663B before popping up to $20.753B while the Estimize consensus declined from $20.943B to $20.784B. Timeliness is correlated with accuracy and the directionality of analyst revisions at the end of the quarter are often a leading indicator. In this case we saw Wall Street raise its revenue estimate right before the report, which may be a bullish indicator.

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Among the analysts with at least 2 estimates scored on Wells Fargo, 5thStResearch has been the most accurate with an average of 18.75 points per estimate. 5thStResearch is an an independent equities research analyst with over 425 scored estimates on the platform who is also ranked 26th overall among over 4,550 contributing analysts.

This quarter contirbuting analysts on the Estimize.com platform are expecting Wells Fargo to maintain its win streak against the Wall Street consensus, but also expecting the rate of profit growth to cool off. The financials are predicted to be one of the weaker industries this earnings season, but while most banks are forecast to report earnings downturns, modest growth is still expected from Wells Fargo. Check out our latest post to see a more complete overview of Wells Fargo’s peers and learn what to expect from the banks this earnings season.

Disclosure: None.

Source: Most Banks Are Expected To Stumble This Earnings Season, But Not This One