We are at the end of this series, and I will present the conclusions and recommendations. I'm evaluating Wells Fargo (WFC), U.S. Bancorp (USB) , and PNC Financial (PNC) in terms of the underlying businesses. In other words, how these companies are performing and how they are performing in relation to each other. Below is the list of previous articles:
- Valuing Bank Shares, Part I
- Valuing Bank Shares, Part II
- Valuing Bank Shares, Part III
- Valuing Bank Shares, Part IV
- Valuing Bank Shares, Part V
- Valuing Bank Shares, Part VI
- Valuing Bank Shares, Part VII
In terms of financial performance, Wells Fargo and U.S. Bancorp have the edge over PNC Financial. U.S. Bancorp is dominating in both the revenue growth and net income categories. Wells Fargo had strong performance on the bottom line. I expect these trends to continue.
The net profit margin of all three firms is superb. That said, Wells Fargo and particularly U.S. Bancorp have the edge in this category. In terms of the stability of cash flow from operations, U.S. Bancorp and PNC outperform Wells Fargo. All three firms have done an excellent job of increasing total equity.
U.S. Bancorp is outperforming in terms of increasing total assets and cash. Further, the firm is the leader in return on equity. During the first half of the year, Wells Fargo and U.S. Bancorp continued the stellar performance. U.S. Bancorp's first half profit margin is 43 percent and Well Fargo's profit margin is 36 percent.
When we covered the valuations, there wasn't an undervalued firm. None of the three firms are having financial difficulty. The preference is to initiate new long positions below the current valuation.
Wells Fargo and U.S. Bancorp are the better firms. I prefer U.S. Bancorp, but Wells Fargo has also performed very well. I would use periods of economic uncertainty to accumulate shares of Wells Fargo and U.S. Bancorp.