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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.
Fri, Oct. 17, 12:20 PM
- One of the key issues serving as a road block to mortgage lending is banker fear over having any loans put back to them by the GSEs at any time - even years down the road - for any number of reasons.
- This concern was voiced most pointedly in the late summer by Wells Fargo (WFC +1.2%) CEO John Stumpf in the kind of call-out of regulators you don't often hear from corporate leaders.
- The WSJ is now reporting that Fannie (OTCQB:FNMA +5.9%), Freddie (OTCQB:FMCC +7.3%), their regulators, and banks are near a deal in which the lenders could feel protected enough to begin granting mortgages to those without perfect credit and employment histories.
- ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, FNCL, FINU, RWW, RYF, FINZ
Wed, Oct. 15, 10:49 AM
- Bank earnings models will no doubt need to be tweaked as the sure thing of higher rates becomes somewhat less sure, with the 10-year U.S. Treasury yield plunging all the way down to 2%, and 30-day Fed Funds futures - just weeks ago pricing in 100% chance of a rate hike by June 2015 - now sees no move until December 2015.
- The XLF is lower by 1.9% and the Regional Banking ETF (NYSEARCA:KRE) is down 2.1% (the S&P 500 is off a mere 1.1%). Among individual names, KeyCorp (KEY -6.4%), First Bancorp (FBP -6.4%), Regions Financial (RF -4%), U.S. Bancorp (USB -2.2%), Fifth Third (FITB -2.6%), Bank of America (BAC -4%), Citigroup (C -3.3%), JPMorgan (JPM -2.8%), Wells Fargo (WFC -1.9%).
- Financial ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KRU, RWW, KBWR, RYF, FINZ, KRS
- Life insurers were also waiting on higher rates and they're slipping more than the averages as well. MetLife (MET -3.7%), Prudential (PRU -2.9%), Manulife (MFC -3.5%) Sun Life (SLF -3.4%), Lincoln Financial (LNC -3.9%).
- Insurance ETFs: KIE, IAK, KBWP, KBWI
- Previously: BofA call: Assumption about higher rates not so sure anymore
Tue, Oct. 14, 10:36 AM
- Credit quality is the best he's seen in his more than 32 years at the bank, says Wells Fargo (WFC -1.7%) chief John Stumpf, leading off the earnings call.
- Webcast and presentation slides
- The housing market, he says, has not fully recovered as tight inventory, slower household formation, high student loan debt, and tough lending standards hold things back.
- Taking over the call, CFO John Shrewsberry says 48.7M shares were repurchased during the Q (net share reduction during quarter of 34.9M), and the bank entered into a $1B forward repurchase deal expected to settle in Q4 that should retire another 19.8M shares. Between the dividend and buybacks, $3.6B was returned to owners during Q3.
- As for reserve releases, which fell to $300M during Q3 from $500M a quarter ago, Shrewsberry expects them to keep slipping as there's little room left for credit improvement.
- Previously: Wells Fargo slips after inline results
Tue, Oct. 14, 8:30 AM
- Q3 net income of $5.7B or $1.02 per share up 3% from a year ago.
- Net interest income of $10.9B up $150M from Q2, as strong asset growth was offset by a nine basis point drop in net interest margin to 3.06% - consumer deposits are rushing in, but bank is having trouble finding someplace to invest the cash.
- Noninterest income of $10.3B is flat from Q2, with mortgage banking income of $1.6B off $90M. Residential mortgage originations of $48B were $1B higher on the quarter.
- Noninterest expense of $12.2B increased $54M from Q2. The efficiency ratio improves to 57.7% from 57.9%.
- Total loans of $838.9B up $9.9B from Q2.
- Conference call at 10 ET
- WFC -0.9% premarket
- Previously: Wells Fargo EPS in-line, beats on revenue
Tue, Oct. 14, 8:04 AM
Mon, Oct. 13, 5:30 PM
Mon, Oct. 13, 10:55 AM
- Credit-cards have historically been more of an "accommodation" for branches rather than a serious business at Wells Fargo (WFC +0.2%), says Beverly Anderson, head of the bank's consumer financial services.
- Things, though, are quickly changing at what is just the country's 7th largest issuer, in part thanks to the purchase of Wachovia in 2008 which greatly expanded Wells' branch network east of the Mississippi. "We can sell a card to a customer at a fraction of the cost of someone else from the outside," said CEO John Stumpf a few months back.
- Competitors are noticing: "We have increasingly started tracking Wells Fargo," says Discover chief David Nelms.
- Wells Fargo has picked up 2M new customers in the past year, credit-card purchase volume was up 16% Y/Y through June 30, and credit-card household penetration grew to 39% from 35%.
Mon, Oct. 13, 8:00 AM
- When you're a hammer, everything looks like a nail. In what smells like another foray by the Consumer Financial Protection Bureau, with other agencies possibly joining in, banks are reportedly under investigation for lending ... this time for automobiles.
- Amid an otherwise sluggish loan market - especially for mortgages - auto lending has experienced rapid growth over the past few years, particularly subprime lending, and those in that business - Santander Consumer being one - are already under examination by the CFPB.
- At issue for banks is not just the direct auto loans they're making, but the financing they're providing to shops like Santander Consumer.
- Wells Fargo (NYSE:WFC) is the largest U.S. auto lender, with $50.8B in loans outstanding at the end of last year, roughly $15B of which was subprime. In addition, the bank has extended since 2011 more than $1.5B of credit lines to the country's largest subprime lenders. Other sizable players include Capital One (NYSE:COF) and JPMorgan (NYSE:JPM).
- "Banks are making a lot of money off these (auto) loans in many different ways," says the head of a consumer advocate group. Isn't that what they're supposed to do?
- "The subprime auto sector appears too small to present a systemic risk," says BAML's Michael Hanson.
- ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, FNCL, KBWB, RKH, QABA, FINU, KRU, KBWR, RWW, RYF, KRS, FINZ
Wed, Oct. 1, 3:58 PM
- The suit - which is seeking class action status - claims Wells Fargo (NYSE:WFC) and Citigroup's (NYSE:C) CitiMortgage violated federal law by falsely notifying credit reporting agencies that thousands of homeowners went through bankruptcies or foreclosures (Experian is also a defendant).
- The lawsuit claims the mistakes were made after mortgage customers of the two banks sold their homes in a short sale, which is very much not a bankruptcy or foreclosure. The banks, says the plaintiffs, nevertheless reported bankruptcies and foreclosures to credit bureaus and correct their mistake when notified.
- In other Citi news, a Delaware court has ordered the bank to turn over records related to its Banamex unit to a Oklahoma pension fund which wants to know what Citi executives knew and when they knew it.
Thu, Sep. 25, 3:09 PM
- Today's resignation of Attorney General Eric Holder could mark the beginning of the end of the Justice Department’s push to hold big banks accountable for their conduct leading up to the financial crisis.
- Several big banks, including Goldman Sachs (GS -2.1%) and Wells Fargo (WFC -1.1%), are still under investigations by the Justice Department for their sale of flawed mortgage securities before 2008, but settlements in those cases are expected to be much smaller than the big sums extracted from Bank of America (BAC -1.8%), JPMorgan Chase (JPM -2%) and Citigroup (C -2.2%).
- Another sign that the big bank cases may be winding down: Tony West, who was Holder’s point man in the bank settlement talks, recently left the Justice Department to join PepsiCo as its general counsel.
Thu, Sep. 18, 12:53 PM
- Banks, insurers, brokerages and anything else starved for yield continue to gain following yesterday's FOMC news. Among the gainers are Bank of America (BAC +1.9%) - which breaks above $17 for the first time since April - Citigroup (C +2.7%), Wells Fargo (WFC +1.1%), PNC (PNC +1.1%), Fifth Third (FITB +1.7%), SunTrust (STI +1.2%), Schwab (SCHW +2.3%), Prudential (PRU +2.5%), and Lincoln National (LNC +2.4%).
- The XLF +1.2%, KBE +1.5%, and KRE +2%.
- Financial sector ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, KBWB, FNCL, RKH, QABA, FINU, KRU, KBWR, RWW, RYF, KRS, FINZ
- Lit up bright red is the utility sector (XLU -1%), led by Southern Company (SO -1.1%), Dominion Resources (D -1.2%), Duke Energy (DUK -1.4%), and Pinnacle West (PNW -1.9%).
- Utility ETFs: XLU, IDU, VPU, UPW, RYU, FUTY, PUI, FXU, SDP, PSCU
Thu, Sep. 11, 7:08 PM
- After moving back above the $100/share level, Apple (NASDAQ:AAPL) is back over the $600B mark in market cap, pushing it nearly $200B above Exxon Mobil (NYSE:XOM), the next largest company in the U.S.
- XOM is still valued at more than $400B, but Google (NASDAQ:GOOG) at $397B and Microsoft (NASDAQ:MSFT) - which has surged in 2014, adding $74B in market cap to $386B - are closing the gap.
- Berkshire Hathaway (NYSE:BRK.B) completes the top five with a $339B market cap; no other companies are worth more than $300B.
- Rounding out the top 20 market caps: JNJ, WFC, GE, WMT, CVX, PG, JPM, FB, VZ, IBM, PFE, KO, ORCL, T, MRK.
Wed, Sep. 10, 8:03 AM
- It's my favorite slide, says Wells Fargo (NYSE:WFC) CFO John Shrewsberry, presenting at the Barclays Financial Services Conference. He's referring to page 23 of his presentation which shows Wells' performance across certain key metrics vs. its peers.
- Whether its ROA, ROE, efficiency ratio, or payout ratio, Wells Fargo ranks near the top, whether compared against the TBTFs or against regional players (though USB consistently ranks higher ... kudos).
- As for the proposed tough capital rule which made news yesterday, Shrewsberry says regulators have been talking about it for some time, he believes they're serious, the tougher ratios will come to pass, and his bank is prepared.
- Echoing his CEO John Stumpf from a couple of weeks ago, Shrewsberry says the current mortgage regime - where GSEs threaten to put back to lenders any mortgages which don't perform, no matter how many years have gone by - is not a viable business model for the bank.
Tue, Sep. 9, 12:24 PM
- The Fed intends to impose a capital surcharge on banks tougher than the international standard, according to Fed Governor Daniel Tarullo's prepared remarks for the Senate Banking Committee. Those banks with heavier reliance on short-term funding like overnight loans - i.e. Goldman Sachs (GS -1%) and Morgan Stanley (MS -1.8%) - will likely face even more rigorous requirements.
- Officials haven't yet decided on a number, but reportedly are considering as much as 200 basis points more than the top range of 2.5% of risk-weighted assets agreed to by international regulators.
- What's not yet clear is who would need to raise capital to meet the new, tougher standard.
- Citigroup (C -1%), Bank of America (BAC -0.6%), JPMorgan (JPM -1.3%), Wells Fargo (WFC -0.4%), State Street (STT -1.1%), Bank of New York Mellon (BK -0.9%)
- ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, IAI, SEF, IYG, FXO, FNCL, FINU, KCE, RWW, RYF, KBWC, FINZ
Thu, Sep. 4, 3:18 AM
- U.S. regulators have approved of the proposed liquidity rules to safeguard banks in case of a financial crunch.
- The rules are requiring large U.S. banks to load up on ultra-safe assets to ensure enough cash and securities to fund their operations for 30 days. Separate liquidity rules for foreign banks will be drawn up at a later date.
- Big banks will need to hold a total of about $2.5T in easy-to-sell assets by 2017, which would result in a $100B shortfall if the threshold applied today.
- Related tickers: JPM, C, BAC, WFC, GS, MS, BK, STT, ZION
- Previously: Bank regulators to vote on new liquidity rules
Wed, Sep. 3, 2:39 AM
- Bank regulators are expected to finalize rules today that would require banks to hold capital against every asset on their books, and approve of a "liquidity-coverage ratio", which would require large banks to load up on ultra-safe assets to fund their operations for 30 days.
- The new rules have Wall Street concerned due to the likely harm to earnings and lending restrictions, although regulators say the policies will create a safer financial system.
- Related tickers: JPM, C, BAC, WFC, GS, MS, BK, STT, ZION
WFC vs. ETF Alternatives
Wells Fargo & Co is a diversified financial services company. It provides retail, corporate and commercial banking services through banking stores and offices, the internet and other distribution channels to individuals, businesses and institutions.
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