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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.
- Wells Fargo shares have doubled in the past two years.
- The company's decent dividend has room to expand through increased earnings and a higher payout ratio.
- What do total returns look like over the short and medium terms?
- We pitch two companies from the banking sector, Wells Fargo and BB&T, against one another in the latest instalment of our Head-To-Head series.
- The article focuses on the relative strengths and weaknesses of Wells Fargo and BB&T based on business performance and dividends/forecasts.
- It ends with discussion of the current valuations of the two companies, and details whether Wells Fargo represents good relative value at current price levels.
- We chose to compare Wells Fargo and BB&T because of their similar yields, but markedly different recent financial performance.
- Wells Fargo failed to beat its sequential performance for the first time in five years.
- Quantitative easing and poor performance of the mortgage segment are the biggest challenges for the bank.
- Medium-long term prospects of the sector look good, as the quantitative easing program is decreased, which will increase the net interest margins of the banks.
Wells Fargo: Returning More Capital To Share Holders
- Strong quarterly profits exceed $5.7 billion.
- Returning capital to shareholders through share buy backs and dividends.
- Analyst remain bullish on stock upside.
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
Thu, Aug. 28, 8:04 AM
- Maybe not wanting competition for federal government debt, U.S. regulators are set to approve a final liquidity rule next week reportedly excluding municipal bonds from being among banks' high-quality, highly liquid assets. Treasurys and balances held at the Fed, of course, would be allowed.
- Wells Fargo (NYSE:WFC) - with $47.3B - is the largest holder of municipals among the four largest U.S. banks. It hasn't said how much of that amount is included in its liquidity tally, but did say it was compliant with the international rule and awaiting the final U.S. version.
- Both banks and local governments had naturally argued to include munis in the final rule. "[This] will almost certainly decrease liquidity in asset markets disfavored by the rule," says ABA President Frank Keating.
- Muni ETFs: MUB, PZA, TFI, XMPT, PRB, PVI, VRD, RVNU, FMB
- Financial sector ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, FNCL, FINU, RWW, RYF, FINZ
Tue, Aug. 26, 1:25 PM
- "We're just not going to make those loans and there's going to be a whole bunch of Americans that are underserved in the mortgage market," says Wells Fargo (WFC +0.2%) chief John Stumpf, warning (in an FT interview) the GSEs to stop being so quick to accuse banks of faulty underwriting and then forcing them to repurchase soured loans.
- Fighting the last war, regulators are demanding more rigorous underwriting and tighter lending criteria, but evidence is beginning to grow (especially if you ask banks!) that the pendulum has swung too far.
- Stumpf: "If somebody makes a payment for - let’s say - three years, the risk ought to transfer then to the insurance company ... If you’re going to pick through each one looking for a technical fault not to pay your insurance policy we’re not going to be in that business.”
- Jamie Dimon (JPM +0.8%) last month: "We want to help consumers there, but we can’t do it at great risk to JPMorgan ... We’re going to be very very cautious in that line of business.”
Thu, Aug. 21, 9:26 AM
- "It's definitely politics," Dick Kovacevich says of Bank of America's $16.65B mortgage settlement. "It has nothing to with justice or restitution to the innocent victims. In fact, more of the money is going to the coffers of the states and various departments than the victims."
- Wells Fargo (NYSE:WFC) shareholders who remember the legal onslaught brought upon JPMorgan when Jamie Dimon dared to question U.S. regulators, can be thankful Kovacevich is a former chairman and CEO of their bank.
- Kovacevich: "[Neither] JPMorgan or its employees [nor] Bank of America or its employees did anything wrong here. They just bought companies that did wrong ... Why are we charging the stock holders instead of going after the people who did wrong? Corporations don't engage in criminal behavior. They don't take advantage of innocent people. People do."
Wed, Aug. 20, 9:14 AM
- The Wells Fargo Startup Accelerator will be a semiannual "boot camp" for tech startups in the areas of payments, deposits, fraud, operations, and other financial services areas. Wells Fargo (NYSE:WFC) will make a direct equity investment of $50K to $500K in each selected startup.
- Applications are being accepted through October 1. "We need to expand our access to new ideas at the edges of our industry," says Steve Ellis, head of Wholesale Services at the bank. Three companies have already been selected and funded.
- Press release
Tue, Aug. 19, 3:09 PM
- Known internally as the "Big Hairy Audacious Goal," Wells Fargo (WFC +0.2%) aims to double the size of its asset-management operation to more than $1T of AUM over the next decade through (small) acquisitions and aggressive selling to big-fish investors, reports the WSJ.
- The move comes as other parts of Wells' business - notably mortgages - stagnate (bank revenue fell 1.5% Y/Y in Q2), and major acquisitions are pretty much verboten in today's regulatory environment.
- Investors may be steering away from mutual funds and toward passive products like ETFs and index funds, but it hasn't stopped JPMorgan from racking up $17B of inflows in 2013, and another $17.5B so far this year. Wells, on the other hand, saw $1.6B of outflows in 2013 and another $1B YTD. Goldman Sachs - the only other of U.S. banks ranking among the top 50 asset managers - like JPMorgan, also saw sizable inflows during this period.
Thu, Aug. 14, 11:34 AM
- Loan officers' top commission rate rose to 70 basis points from 63, according to Bloomberg, and the new policy - which took effect on July 1 - also merges two lower tiers into one that pays 65 bps instead of 48 or 58.
- “By adjusting those tiers we created a lot of desire for the loan officers to go out and get that extra production,” says Franklin Codel, who oversees mortgage origination for Wells (WFC +0.7%). “This creates that little extra incentive.”
- With the refinancing boom finished, lenders are trying to find business by funding new home purchases, but those deals usually require more effort than a refi, and the big players are losing talent to smaller firms with better pay packages and shorter turnaround times for closing deals.
Wed, Aug. 13, 3:14 AM
- Bank officials, trade groups and lawmakers are quietly pressing the Federal Reserve for a delay of up to seven years regarding the rule that limits their investments in private-equity and venture-capital funds
- The "Volcker rule," part of the Dodd-Frank legislation, restricts banks' ownership stake in hedge funds and private equity funds, and prohibits banks from making speculative bets with their own money.
- Regulators finalized the rule in December but agreed not to enforce it until 2015.
- 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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