Wells Fargo & Company, (WFC) through its subsidiaries, provides retail, commercial, and corporate banking services primarily in the United States. The company operates in three segments: Community Banking; Wholesale Banking; and Wealth, Brokerage, and Retirement. The Community Banking segment offers deposits, including checking, market rate, and individual retirement accounts; savings and time deposits; and debit cards. Its loan products comprise lines of credit, auto floor plans, equity lines and loans, equipment and transportation loans, education loans, residential mortgage loans, health savings accounts, and credit cards.
Wells Fargo, in its bid to grow and become more competitive, appears to have drunk from the same cup as Bank of America (BAC) in purchasing companies that bring it more trouble than it's worth. When Wells Fargo purchased Wachovia and Golden West Financial, it also inherited the consequences of their deceptive marketing practices to push adjustable rate mortgages. Wells Fargo ended up agreeing to pay the state of Maryland $940,056.00.
If that is not enough, Wells Fargo may be facing scrutiny from a bond holding group to the tune of $19 billion on residential-backed securities. Granted, Wells Fargo is in the same soup as Bank of America, which already paid out $8.5 billion, and JP Morgan Chase (JPM), so it is not alone. But this does not fare well for the big bank stocks.
So what should we expect from Wells Fargo this year? This is the question everyone should ask. Well, analysts seem to be saying that the six largest lending institutions could see an average profit of 57% through the year. How much we should listen to them depends upon one's ability to do individual research. This time last year they predicted a 32% increase in profitability for the banks. Earnings dropped by an average of 18%. Considering we have had one of the worst financial years in history, it seems the banks cannot fare much worse and there is only one way to move.
Wells Fargo has had a nice bullish run after building a very solid foundation from August through October. Since then, shares have risen about 23%. We believe Wells Fargo would make a good investment presently but are concerned about long-term growth. It is getting close to its median target range of $32.58. If the markets are favorable, it could move up to its high target of $41 and bring a hefty profit.
Investors will be at the mercy of the markets for WFC. It could bring a small profit or a much larger one depending on how the financial sector as a whole fares.
Consensus Estimates: $0.73
Earnings Whisper: $0.72
Revenue Growth: Dec 2011- (6.60%) March 2012- (2.90%)
Analysts Recommendations: Strong Buy
Median Target: $32.58