Wells Fargo (NYSE:WFC) recovered quickly from its credit crisis drop of over 70%, gaining its losses back almost as quickly as it incurred those losses. Excluding the drop from the chart, the stock is back to its pre-credit crisis trading pattern of a range between $25 and $35. The stock seems undervalued here as the market is not giving the company any credit for the quality of the company's book of assets and its earnings power. Although analysts suggest limited upside, I think the trailing valuation metrics have more weight here, especially knowing that Warren Buffett is long the stock. Note, the stock pays a 12 cents quarterly dividend which equates to an annual yield of 1.5%. Below is an in depth look at the valuations and other key facts.
Valuation: Wells Fargo's trailing 5 year valuation metrics suggest that the stock is under valued as they are below their respective 5 year averages. Wells Fargo's current P/B ratio is 1.3 and it has averaged 1.6 over the past 5 years with a high of 2.7 and low of 0.8. Wells Fargo's current P/E ratio is 10.9 and it has averaged 17.6 over the past 5 years with a high of 42.1 and low of 8.9.
Price Target: The consensus price target for the analysts who follow Wells Fargo is $35. That is upside of 14% from today's stock price of $30.59 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: Wells Fargo is currently trading at about $31 a share with analysts expecting EPS of $3.61 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 8.5. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Bank of America (NYSE:BAC) is currently trading at about $8 a share with analysts expecting EPS of $1.09 next year, an earnings increase of 54% y/y, for a forward P/E ratio of 7.3.
U.S. Bancorp (NYSE:USB) is currently trading at about $29 a share with analysts expecting EPS of $2.92 next year, an earnings increase of 9% y/y, for a forward P/E ratio of 9.9. Citigroup (NYSE:C) is currently trading at about $32 a share with analysts expecting EPS of $4.7 next year, an earnings increase of 16% y/y, for a forward P/E ratio of 6.9. The mean forward P/E of Wells Fargo's competitors is 8 which suggests that Wells Fargo is fairly valued relative to its publically traded competitors.
Earnings Estimates: Wells Fargo has beat EPS estimates 3 times in the past 4 quarters. The company's EPS figures have come in between -1 cents and 2 cents from consensus estimates or about -1.4% to 2.9% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.
Top Stock Holders: Notably, the top institution that owns Wells Fargo is Berkshire Hathaway (NYSE:BRK.B), which owns 383.7 million shares or 7.28% of the shares outstanding.
Price Action: Wells Fargo is down 2.7% over the past year, underperforming the S&P 500, which is up 5.4%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $28.89 and above its 200 day moving average, which sits at $26.58.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.