Earnings Preview: Wells Fargo

Wells Fargo (WFC) is expected to report Q2 earnings Wednesday, July 16 before market open,with a conference call scheduled for 8:30 am ET.

Guidance

Analysts are looking for EPS of 50c on revenue of $10.65B. The consensus range for EPS is 25c to 61c, while the consensus range for revenue is $10.26B to $11.14B, according to First Call.

Analyst Views

On July 2, RBC Capital lowered their 2008 EPS estimate for Wells Fargo to $2.10 from $2.35 and reduced their target to $28 from $33, due to softening consumer trends and lower real estate volumes. The firm now expects the company to report full year charge-offs of $7.5B. However, RBC maintained their Outperform rating, as they believe WFC will survive the downturn better than most of its peers. Wells Fargo was reported by The New York Post on June 26 to be one of a number of banks that may consider mergers.

Comments

[Calvin C.:]

One of the steadier banks...

2008 Jul 15 05:42 PM

[prescient11:]

WFC will trade in the teens before it's all over. You can bank on that.

2008 Jul 15 06:20 PM

[John Pseudonym:]

Jim Rogers says $8 is the bottom for this stock.

2008 Jul 15 07:40 PM

[Periploi:]

Unless they close all the banks, I like this one to survive.

2008 Jul 15 08:41 PM

[najdorf:]

For some reason (maybe the Buffett association) people have a faulty perception of WFC as a clean, safe bank. In terms of lending standards and practices, they have the same problems as most of the other big banks - 2/28 mortgages, lots of subprime, lots of dubious AAA securitization, HELOCs, high California concentration, etc. As a result their NPAs are up there with C, BAC, and the other big banks that people see as risks in today's environment. They have been light on write-downs so far and the balance sheet is pretty complex and opaque, which means more may be coming.

A positive is that it looks like WFC may have done a better job extracting a price for the risk they took (pretty good interest margin) and hedging their risk than other banks, but by no means are they the banking saviors some have imagined them to be, and the stock price has been justly beaten down. I get the sense that their management might be a little smarter than the C/BAC management, so they're a decent bet to bounce back, but it's speculative.

Sure they probably won't go out of business, but they could sit in the teens and twenties for a long time if this crisis continues. People loved WFC at 30 earlier this year. People were calling a bottom for BAC at 37. A lot can still go wrong, and even if things go right from an earnings perspective, remember that a lot of investors who were in for the losses and recently sold are going to be leery of bank stocks for a long time. You've got to be in stocks for the long run (like you don't need any of the invested capital for 10 years) to be serious about building bank positions as anything other than a speculation right now.

2008 Jul 15 10:28 PM

[wilcoxrlrr1:]

With the money moving around these days, be prepared to see Wells Fargo making some moves on some of the weakened banks.

2008 Jul 15 10:29 PM

[Coallover:]

I would say $8 target price and will be steady in the single digit. As you have already heard from a lot that sources that 'downward' direction will last for 2 more years. Wait or sell now then buy at single digit.

2008 Jul 15 10:39 PM

[1worldcurrency:]

Najdorf has it exactly right, but he didn't mention WF's cute accounting trick last quarter of changing their definition of a delinquent loan from 90 days past due to 120 days past due, meaning more delinquencies in the upcoming quarters.

2008 Jul 15 11:01 PM

[prescient11:]

Squashnut, you are right, I just wonder if they're going to be able to delay the pain for one or two more Qs due to that "accounting trick."

2008 Jul 15 11:51 PM

[Raja41:]

There are lot of small regional Banks who have no residential or subprime mortgages or delinquencies and no write offs. Look up FCCC.ob

2008 Jul 16 12:35 AM

[flyerfan:]

Wells Fargo has not had a quarterly loss during this crisis, the bank has already, in six months, earned as much as Ms. Whitney projected for the full year. They are RAISING the dividend by 10%. Do you think they would consider this if they were going to need to raise capital "at least once and maybe twice" as she speculates? Sounds like she is not so infallable eh?? So all of you who follow her without question and who just assume California is bad so WFC will falter, might want to reconsider. WFC has an extremely diverse franchise and dating back to its Norwest days (Norwest ACQUIRED Wells Fargo by the way and assumed the WFC name) has always been an extremely conservative lender. Dont believe me, go into a branch and see what it takes to get a loan, see if they will give you 120% loan to value. Those who speak often don't have a clue. WFC very actively originated mortgages, but they do not hold many of them, they packaged and sold them. Speculators getting burned today with the earnings report, glad to see it. Shorts are much to blame for the severity of the downturn in stock prices and i love it when they get burned because they are attempting to profit from the pain of others.

2008 Jul 16 10:37 AM