Wells Fargo (WFC) reports Friday morning, July 13th before the bell, with analyst consensus expecting $0.81 in earnings per share on $21.31 billion in revenues, for expected year-over-year growth of 15% and 5% respectively.
The trend in current 2012 and 2013 eps estimates has been downward over the last 12 months, with analyst's trimming about 10% from 2012 and 2013 consensus. (See the actual estimates below.)
The biggest plus to WFC today is that the mortgage market remains robust, since originating and servicing mortgages accounts for about 25% of WFC's total value per Titers, a research firm that issued a report on WFC dated May 30, 2012.
Per the same Trefis report, WFC accounted for 1/3rd of all mortgage originations (total $385 bl) in the 1st quarter, 2012, compared to JP Morgan's 10% market share.
The point being that given the latest move in interest rates - the 10-year Treasury yield is trading at 1.50% as this is being written - and that the 30-year mortgage rate continues to hit new low yields, WFC should have a decent quarter as the tailwind remains intact.
A tougher US economy with lower rates seems to be playing right into WFC's mortgage origination hand these days.
Unlike JP Morgan (JPM), WFC doesn't have the capital market activity that the other former money-center's do (like a JP Morgan or Citigroup (C)) so in down markets WFC should not see the earnings volatility that another bigger bank does.
Last year WFC printed $2.82 per share in eps, with the current estimates for 2012 and 2013 calling for $3.29 and $3.66, for actual growth this year of 10% and expected growth next year of 11%, with the stock currently trading at 10(x) this year's consensus estimate.
Pressure on estimates (as referenced above) is actually coming from expense growth, not credit or trading. At their May meeting, WFC management thought expenses would drift higher since revenue growth has been decent: 4.5% expected in 2012.
WFC doesn't have the problems Citi and JPM do, and they have the very nice mortgage origination tail-wind right now to drive growth. In our opinion, at 10(x) this year's earnings for 10% growth, it isn't overvalued, or screamingly cheap, i just think WFC is lower risk here given the rest of the mega-cap banking universe.
WFC's revenue growth this year is expected at 4.5%, JPM's 2012 revenue growth will down 3% year-over-year, while Citi's is expected to decline 2%, (all based on recent consensus estimates).Disclosure:
I am longJPM
Additional disclosure: Sorry, i copied the Trefis report to our doc's but couldnt link it to the S/A blog. I think the problem is that i am technologically-challenged, and cant link the PDF file to the preview. Not sure how to do that - tried cutting and pasting and it didnt work.