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- The recent oil price shock drove the price of oil from the approximately $110 down to $55/bbl.
- Many oil & gas companies engage in capital budgeting by assuming the price of oil going forward.
- Due to the oil price shock, many of the projects these companies embark on are simply not viable anymore.
- As a result, expectations of default within the O&G industry has increased drastically since June.
- Wells Fargo has one of the largest exposures to the oil & gas industry, and defaults could adversely affect the company’s results in multiple ways.
- The bank was recently downgraded at Bernstein.
- The bank was recently sued for its part in the mortgage crisis which caused five credit units to go belly-up.
- At least the company is still making great money with its initial investment in Lending Club.
- The bank continues to beat the broader market since mid-July.
- The stock seems to be undervalued when compared to 2015 earnings estimates, but those estimates have been cut since the last time I looked at the stock.
- There is a bit more risk than reward in the name right now as it appears to be in overbought territory.
Wells Fargo Still Offers Investors A Very Attractive Risk/Reward Ratio
- Wells Fargo makes an attractive value proposition for long-term investors.
- The bank's leading position in mortgage banking should serve Wells Fargo well as the housing market rebounds and demand for mortgages increases.
- High past profitability measures and improving efficiency ratios limit investors' downside risks.
- Despite a high P/B ratio of 1.73x, Wells Fargo is not too expensive yet.
Wells Fargo Is An Attractive Income Investment In The Financial Industry
- Wells Fargo has performed well over the last several years, even during the financial crisis.
- Wells Fargo has industry-leading fundamentals.
- Wells Fargo offers a high initial yield, high dividend growth and a low payout ratio.
- Wells Fargo has the lowest EV/EBITDA ratio among its peers and trades at a substantial discount to its intrinsic value.
Why Investors Should Choose Royal Bank Over Wells Fargo
- Royal Bank and Wells Fargo have comparable business, although the American bank is nearly three times larger than Canada's biggest bank by market capitalization.
- Wells Fargo has a slightly more flexible balance sheet than Royal, but trades at a higher forward earnings multiple.
- Royal Bank did not cut its dividend during the financial crisis and its current quarterly payout is 50% higher than it was in 2007-2008.
- Based on a similar earnings growth outlook for both of these companies, Royal Bank appears to be the better opportunity due to its lower valuation and higher dividend yield.
- WFC is suitable for both the Defensive Investor and the Enterprising Investor following the ModernGraham approach.
- According to the ModernGraham valuation model, the company is significantly undervalued at the present time.
- The market is implying 3.19% earnings growth over the next 7-10 years, which is significantly less than the rate the company has seen in recent years.
Shrinking Interest Margins Weigh On Wells Fargo's Q3 Results
- Q3 saw a drop in interest rate margin of 9 basis points. However financial results continued to be impressive despite falling interest rate margins.
- Interest income increased, largely through effective dilution.
- Wells Fargo passed the Reserve Bank’s stress test and demonstrated its ability to wither future economic storms.
- It presented opportunity for dividend investors through strong capital position and effective risk management approach.
- Capital gain seeking investors may also reap rewards through share repurchases.
Wells Fargo - Solid Results, But What Can Drive Appeal Further?
- Wells Fargo posts results which are in line with expectations.
- The report shows continued weakness in the housing market and potentially emerging issues in the automotive market.
- I remain cautious despite the fair valuation and the appealing dividend yield, seeing a lack of further triggers.
Does The Wells Fargo Whisper Number Indicate Investor Confidence?
- The whisper number is $1.02, in-line with the analysts' estimate.
- Wells Fargo has a 40% positive surprise history (having topped the whisper in 16 of the 40 earnings reports for which we have data).
- The overall average post earnings price move is 'positive' (beat the whisper number and see strength, miss and see strength) when the company reports earnings.
- Wells Fargo & Company is scheduled to report 3Q 2014 earnings before the opening bell on Tuesday, October 14th.
- Earnings Per Share: The current Street estimate is $1.02 (range $0.95 to $1.05).
- Revenues: Analysts expect an increase of 3.0% y/y to $21.08 billion (range $20.74 billion to $21.53 billion).
Why Wells Fargo Is Going Higher: 5-Year Forward Price Target Of $85
- With great prospects for future growth given Wells Fargo's strong position in the commercial banking sector, I believe the stock is a buy even at the current price.
- Having met, and in most cases beaten earnings estimates for the past 11 quarters running, I believe Wells Fargo can achieve 20% annual EPS growth for the next five years.
- I forecast a price target of $85 based on a 7% discount rate, and 20% growth in earnings and dividends per share.
- Wells Fargo bank has best share price gain over the past ten years among other leading US banks.
- It is the country's market leader in mortgage origination and provides banking services to one-third of US households.
- Several key metrics for profitability and efficiency show Wells Fargo is a leading bank among its peers.
Wells Fargo: Should You Still Buy Wells Fargo Close To Its 52-Week High?
- Wells Fargo is one of the best run Wall Street banks with strong earnings momentum and dividend growth.
- Wells Fargo also managed so far to stay out of trouble with the Department of Justice, which kept caused some troubles for Citigroup and Bank of America shareholders.
- At 1.72x book value and close to its 52-week high, is Wells Fargo a Buy, Hold or Sell?
- First, we'll go over the terms of the warrants, including strike price, expiration date, and adjustment terms.
- Next we'll try to find a reasonable forward valuation for Wells Fargo common stock through 2018.
- Lastly, we'll compare the returns of the warrants to the returns of the common stock.
How Will The Housing Market Impact Wells Fargo Going Forward?
- Based on economic growth rates, restricted supply, and steadily rising house prices, I am optimistic about Wells Fargo's exposure to the sector.
- Wells Fargo is in a good position to weather any potential downturns in the housing market, with almost half of its revenues originating from non-interest income.
- The bank's performance across its Community Banking, Wholesale Banking, and Wealth, Brokerage and Retirement functions places Wells Fargo as one of the leading consumer banks in the United States.
- WFC's stock is an excellent combination of value and dividend growth stock.
- WFC's stock still has plenty of room to move up.
- WFC's stock is ranked third among all S&P 500 stocks yielding more than 2%, according to Portfolio123’s "All-Stars: Graham" powerful ranking system.
Wells Fargo Offers An Attractive Combination Of Dividends And Capital Gains.
- Wells Fargo continues to perform well as evidenced by its stellar Return on Assets.
- WFC consistently trades a premium to book value due to its high returns.
- I expect WFC book value and dividend rate to consistently grow over the next couple of years.
Tue, Dec. 23, 2:22 PM
- The National Credit Union Administration Board last week filed suit against Bank of America and U.S. Bancorp over crisis-era mortgage trusts, and today it's Wells Fargo's (NYSE:WFC) turn.
- At issue are five credit unions which failed after buying about $2.5B in MBS between 2004 and 2007.
- Previously: BofA and U.S. Bancorp face another mortgage suit (Dec. 17)
Fri, Dec. 12, 2:46 PM
- Wells Fargo's (WFC -0.4%) Norwest Venture Partners is one of LendingClub's earliest investors, and it's currently sporting a return of about 70x its $18M investment.
- The bank's limited partnership with Norwest (Wells is the sole LP) is a rare one in the Dodd-Frank era, but it's been lucrative, particularly this year. In Q3, Wells booked more than $700M in profits from equity investments, after $400 in Q2 - those profits come largely from Norwest, which now has $5B in AUM.
- Previously: LendingClub blasts off following IPO (Dec. 11, 2014)
Tue, Dec. 9, 8:52 AM
- A check of the other major banks premarket amid a global selloff of some note and BofA's Brian Moynihan's warning about sluggish Q4 trading revenue finds JPMorgan (NYSE:JPM) -1.5%, Citigroup (NYSE:C) -1.5%, Wells Fargo (NYSE:WFC) -1.2%, Goldman Sachs (NYSE:GS) -1.7%, and Morgan Stanley (NYSE:MS) -1.5%.
- XLF -1.1%
- ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, IAI, SEF, IYG, FXO, FNCL, FINU, KCE, RWW, RYF, KBWC, FINZ
Mon, Dec. 8, 8:54 AM| Comment!
Fri, Dec. 5, 10:06 AM
- Among those counting on higher interest rates to boost profits are banks, insurers, and online brokers, and all are outliers to the upside in today's session after a strong November jobs report has rate hike expectations on the rise. The XLF is up 1%.
- TBTFs: Bank of America (BAC +2.1%), Citigroup (C +1.8%), JPMorgan (JPM +2.2%), Wells Fargo (WFC +1.2%)
- Regionals (KRE +1.9%): Regions Financial (RF +2.6%), KeyCorp (KEY +2.3%), Huntington (HBAN +1.5%), BB&T (BBT +1.6%), Zions (ZION +4%)
- Custodials: BNY Mellon (BNY), State Street (STT +1.6%), Northern Trust (NTRS +1.8%)
- Life insurers: MetLife (MET +2.1%), Prudential (PRU +2.5%), Lincoln National (LNC +2.3%)
- Online brokers: Schwab (SCHW +3.8%), E*Trade (ETFC +3%), Ameritrade (AMTD +2.7%)
- Previously: Short end of yield curve on the move after jobs number (Dec. 5, 2014)
- Previously: Bonds and dollar higher, gold slumps after strong jobs report (Dec. 5, 2014)
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, KIE, IAT, IAI, SEF, IYG, IAK, FXO, FNCL, KBWB, RKH, QABA, FINU, KRU, RWW, KBWR, RYF, KBWP, KBWI, PSCF, FINZ, KRS
Tue, Dec. 2, 3:42 PM
- "Our concern is that the market has become complacent on the setting of the SIFI surcharge for the mega banks, which means there may be surprise at just how onerous the surcharge could be for JPMorgan (NYSE:JPM), Citigroup (NYSE:C), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS)," writes Guggenheim's Jaret Seiberg.
- The Fed is expected to announce the capital surcharge on December 9.
- Previously: U.S. banks to be hit with tougher capital rule
Sat, Nov. 29, 8:00 AM
- New guidelines - set to take full effect on December 1 - are the result of an agreement reached last month between banks and the GSEs meant to clarify exactly when lenders could be called to task for mortgages sold to Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) which ultimately default. Since the financial crisis, Fannie and Freddie have forced banks to repurchase billions of dollars worth of mortgages, leaving them naturally gun-shy about making new loans to all but the most pristine of credits.
- “It’s providing greater certainty for all the parties so that you can lend more confidently and make the whole judgment process much easier and more clear cut,” says Mike Heid, president of Wells Fargo (NYSE:WFC) Home Mortgage. Along with SunTrust (NYSE:STI), Wells says borrowers should begin to see initial changes - such as faster processing times, reduced credit score requirements, and greater leeway to those whose credit history suffered due to one-time events - in a few weeks.
- "We will be able to be looser and open up the net wider," says Mason-McDuffie Mortgage CEO Bill Godfrey, now expecting to make loans down to a 620 credit score from 660 previously.
- Not everyone agrees: “Unless we are convinced that the rules are going to be permanent and there is not going to be a look back or a reach back in future times…we are simply going to stay on the sidelines," U.S. Bancorp (NYSE:USB) boss Richard Davis has said, and Bank of America (NYSE:BAC) CEO Brian Moynihan made similar comments at a recent conference.
Tue, Nov. 18, 2:57 PM
- Wells Fargo (WFC -0.1%) has been beating or meeting earnings estimates for six quarters running, notes BMO, but "from lower-quality sources such as elevated market-sensitive revenues, an unusually low tax rate, and aggressive reserve releases, while core revenue trends have been under pressure."
- Wells Fargo deserves premium valuation to its big bank peers, says BMO, but a forward P-E ratio 10% higher than the rest - after having no premium as recently as April - is about the limit.
- BMO's downgrade follows Macquarie over the weekend reiterating its Underperform rating after also noting the bank's recent reliance on non-core earnings and its rich valuation.
- Previously: BMO no longer a bull on Wells Fargo
Tue, Nov. 18, 8:46 AM
Fri, Nov. 14, 7:34 AM
- Ocwen Financial's (NYSE:OCN) agreement to buy the MSRs on $39B UPB of mortgages from Wells Fargo (NYSE:WFC) was originally announced in January to the great excitement of Ocwen investors. Shortly after, however, Ben Lawsky held up the deal as his office examined the servicing practices at Ocwen, and its relationships with the Altisource companies.
- The two today announce a mutual decision to cancel the deal. For Wells, the cancellation won't be material to its financial results.
- Source: Press release
- Ocwen is down 6.7% premarket.
Thu, Nov. 13, 9:18 AM
- Aiming to limit focus to its private student loan clients, Wells Fargo (NYSE:WFC) agrees to the sale of its Federal Family Education Loan Program (FFELP) loans ($8.5B principal balance) to Navient (NASDAQ:NAVI). The paper was held in the bank's held-for-sale portfolio, and Wells has not made any federal student loans for more than four years.
- Terms were not disclosed and the deal is expected to close this year. The sale isn't material to the bank's results.
- Wells Fargo's currently has $11.9B in private student loans, making it the nation's largest among the banks.
- Source: Press Release
Wed, Nov. 5, 3:43 PM
- At issue is a two-year old U.S. lawsuit accusing Wells Fargo (WFC +0.5%) of submitting more than 6K home loans for FHA insurance without reporting they did not meet the requirements for the program. The FHA subsequently had to pay out hundreds of millions of claims on loans it should have never insured, says the government.
- JPMorgan, Bank of America, Citigroup, and Deutsche Bank have all reached settlements over the same issue over the past few years.
- In other quarterly disclosures, the bank cut its projected litigation-related losses to $950M above the sum already set aside vs. $1.2B at the end of June.
Tue, Oct. 28, 3:48 PM
Thu, Oct. 23, 4:49 PM
- Not having had the pleasure of being subject to the stress test and CCAR previously, Deutsche Bank's (NYSE:DB) U.S. unit will be a participant next year
- As in prior years, those BHCs with large trading operations - BAC, C, GS, JPM, MS, WFC - will be required to factor in a global market shock as part of their scenarios.
- Those six, plus STT and BK - thanks to their custodial operations - will be required to incorporate a counterparty default scenario.
- Among the items in the severely adverse scenario is the unemployment rate jumping to 10%, a 60% dive in the stock market, and oil jumping to $110 per barrel (how about oil falling to $10 per barrel?).
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, IAI, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KCE, KRU, KBWR, RWW, RYF, KBWC, FINZ, KRS
Wed, Oct. 22, 10:32 AM
- The MBA index rose 11.6% for the week ended October 17, the largest gain since January as mortgage rates continued to decline - the average 30-year fixed mortgage coming in at 4.1%, the lowest since May 2013.
- Leading the way were refinancings, with that gauge jumping 23.3%, the biggest move since January 2012 (purchase applications fell 4.6%).
- Should the trend continue, the now-lean mortgage operations at places like Wells Fargo (WFC +0.2%), JPMorgan (JPM +0.2%), and Bank of America (BAC +0.2%), among others, should provide a nice boost to Q4 results.
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KRU, KBWR, RWW, RYF, FINZ, KRS
Mon, Oct. 20, 12:27 PM
- Beginning today Wells Fargo (WFC +0.6%) debit and credit card holders and small business debit card holders can add those cards to their iPhone 6 and iPhone 6 Plus to make payments without need to swipe a card at spots where merchants are set up to accept it.
- Soon adding the service will be First Horizon's (FHN +0.8%) FIrst Tennessee Bank. which notes the actual and credit and debit card numbers are not shared with merchants when payment is made.
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