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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.
High-Yielding Wells Fargo Is The San Antonio Spurs Of The Investing World
- Wells is a true champion which is well orchestrated.
- When it loses talent it has people that can step in and keep the well oiled machine running.
- This company keeps chugging along with what I believe to be not so exciting earnings reports, but not so exciting wins all the time.
Fri, Jun. 20, 2:33 PM
- A deal between Ocwen Financial (OCN +0.9%) and the New York Dept. of Financial Services is near, reports Inside Mortgage Finance, with a source saying the Wells Fargo (WFC) matter "will come to a head shortly. That source also questions whether Ben Lawsky will charge Ocwen with anything at all.
- To review: New York DFS chief Lawsky - amid an investigation into Ocwen's servicing practices - put a moratorium on Ocwen's purchasing any more packages of mortgage servicing rights, including a $2.7B deal with Wells Fargo.
- Ocwen was up nearly 3% right after the rumor hit the wires, but has given back much of the gain.
Wed, Jun. 18, 5:02 PM
- The trustee units of Detusche Bank (DB), U.S. Bancorp (USB), Wells Fargo (WFC), HSBC, and Bank of New York Mellon (BK) face a lawsuit by an investor group led by BlackRock (BLK) and Pimco (and also including PRU and SCHW) over their role in overseeing and enforcing terms on more than 2K mortgage-backed bonds between 2004 and 2008.
- The group is seeking damages for losses on the paper that have surpassed $250B, reports the WSJ. At issue, say the plaintiffs, is the banks breaching their duty to bondholders by failing to force the lenders and bond issuers to repurchase poorly underwritten loans.
- A similar plaintiffs group has already won settlements from Bank of America and JPMorgan for their roles in originating and selling toxic mortgages.
Mon, Jun. 16, 12:43 PM
- A near-14% rally for Wells Fargo (WFC -1%) has brought its market cap to more than $270B and just about $10B shy of the record for banks of $282.75B set by Citigroup in 2001. Wells' rally this year is even more exceptional given declines posted by BofA, Citi, and JPMorgan.
- Lesson, writes the team at the WSJ: It's better to serve Main Street rather than Wall Street. While new regulations and the absence of volatility has stung investment bank profits, Wells Fargo has focused on its bread-and-buter businesses of commercial and consumer lending, and mortgage banking.
Tue, Jun. 10, 11:37 AM
- Wells Fargo (WFC -0.3%) had tried to convince a federal court that 2012's multi-bank mortgage settlement barred the government from suing again over home lending practices, but a three-judge panel says the settlement gives the government the right to pursue further action.
- The ruling is likely to increase pressure on the bank to settle a FHA mortgage lawsuit filed in October 2012.
Thu, Jun. 5, 11:30 AM
- The bank today launches a survey of about 250 middle-market companies' international growth to get a better idea of where said growth is coming from, what the business environment looks like, and their top concerns.
- Wells Fargo (WFC +0.3%) does have a presence in 35 countries outside the U.S., but its global banking operations pale in comparison to its big bank peers. The bank works with about 25% of U.S. middle-market companies - defined as those with revenue between $20M and $500M. Of those companies about 25% have operations overseas.
Mon, Jun. 2, 9:37 AM
- Hard to believe it's taken this long, but Wells Fargo (WFC) will be requiring nearly all new customers to pay interest and principal on home equity loans from inception. Typically, home equity lines and loans had 10-year interest only periods - never a concern when house prices only went higher, but already hitting some who took out loans a decade a ago, and about to hit a lot more in coming years.
- "The product should be designed to protect the consumer for the long term,” says Brad Blackwell, a mortgage executive at Wells Fargo. “We took this move not only because it’s the right thing to do for our customers, but because we’d like to lead the industry to a more responsible product.”
- Wells is the gorilla in home-equity lending, with a 14% market share, and JPMorgan - ranked #3 - is reportedly evaluating a similar policy.
Fri, May. 30, 7:12 AM| 2 Comments
Thu, May. 29, 7:31 AM
- As at least one city returns to old complaints about redlining, Wells Fargo (WFC) continues to have to deal with accusations of the opposite as a U.S. judge denies the bank's bid to dismiss a Los Angeles suit over predatory lending practices. L.A. has filed suits over this matter against Ciitgroup and Bank of America as well.
Wed, May. 28, 11:27 AM
- "We're very U.S.-centric," says Wells Fargo (WFC) CFO John Shrewsberry, in a "fireside chat" at the Deutsche conference. "We're likely to remain that way." Shrewsberry is talking about Wells' investment bank, and while he expects to pick up market share greater than the current 6% in the U.S., he doesn't anticipate growing overseas.
Thu, May. 22, 1:25 PM
- "There is no company in the country better positioned to take advantage of the shift in government mortgage policies," says Dick Bove. "The internal adjustments made by the bank in pricing servicing and in the cost of originating loans suggest that mortgage activity will be a big source of company income very soon."
- Bove's note on Wells Fargo (WFC +0.6%) comes following the bank's investor day, and after new FHFA director Mel Wall signaled a shift in focus for the GSEs from pulling back from the mortgage market to one of making housing credit more readily available.
- Deutsche's Matt O'Connor isn't as impressed, wondering how GDP growth can accelerate if underwriting standards remain tight, business stays sluggish at the big banks, and the Fed continues to scale back its monetary ease.
Tue, May. 20, 12:05 PM
- The bank is targeting a payout ratio of 55-75% vs. a previous range of 50-65%. The efficiency ratio remains in the 55-59% range, as does ROE of 12-15%, and ROA of 1.3-1.6%.
- CFO John Shrewsberry's presentation slides
- More from Shrewsberry: Expect loan growth to continue at a faster pace than GDP growth, the bank is well-positioned for rising rates, mortgage production revenue should stabilize and WFC is well-positioned for non-mortgage fee growth, and strong credit results (and reserve releases) should continue.
- All presentations and webast
Fri, May. 16, 7:21 AM
- Wells Fargo (WFC) opened an office in Aberdeen this week, hoping to get a piece of Scotland's east coast oil business as part of its U.K. expansion. The bank now has 930 people in EMEA, up from 600 at the start of 2012. Of those 930, 721 are in the U.K.
- The bank doesn't break out European earnings, but EMEA chief Jim Johnston says revenues have grown by at least 10% in each of the past three years.
Wed, May. 14, 10:17 AM
- Among those started at Buy is M&T Bank (MTB -0.9%), with analyst Bill Carcache noting the usually strong performer has lagged over the past 16 months amid regulatory issues and the delay of the Hudson City Bancorp (HCBK -1%) acquisition. Carcache expects approval this year, along with meaningful operating efficiency improvements. "We believe MTB shares are trading at a significant discount to their intrinsic value and expect to see meaningful share price appreciation through 2015."
- Also a Buy is Wells Fargo (WFC -0.8%), with Carcache seeing the bank as well-positioned if the economic recovery remains muted thanks to a combination of fee income and expense control.
- Started at Reduce with $40 price target is Comerica (CMA -1.7%), with Carcache saying the stock price has gotten ahead of itself.
- See also: More on Nomura's wide-ranging new bank coverage
Fri, May. 9, 3:26 PM
- “Jumbos are growing while almost everything else is dead,” says FBR's Paul Miller. “Big banks need loan growth. If they were getting decent commercial loan growth, they wouldn’t be so aggressive on competing for jumbos.”
- As the rest of the home loan market contracts (sharply), applications for jumbo mortgages (above $729K) were up 4.9% Y/Y in March. Another reason for banks plowing into jumbos: They don't have to pay the higher guarantee fees charged by the GSEs, allowing them to actually charge lower rates than on conforming loans. At Wells Fargo (WFC), the current rate for a 30-year fixed jumbo mortgage of 4.13% is 12 basis points less than that for a conventional mortgage loan.
- JPMorgan (JPM) is boosting its efforts and created a special process to review all declined loans to make sure the decisions make sense. It also has a group working with wealthier clients who have more complex financial situations, such as being self-employed. The bank's jumbo mortgage originations accounted for 21% of all mortgages in Q1, up from 10% a year earlier.
- At Bank of America (BAC -1.7%) the down payment required for most jumbos less than $1M was cut this year to 15% from 20%, and nonconforming originations in Q1 were 37% of all mortgages vs. 22% last year.
Thu, May. 8, 3:15 PM
- The Fed today releases for comment a proposed rule prohibiting a financial company from merging with another if their combination's liabilities would exceed 10% of the total of all financial companies.
- The move is another step in implementing the intent of the Dodd-Frank financial reform act. Comments are due by July 8.
- Only JPMorgan (JPM +0.5%), Bank of America (BAC +0.6%), Citigroup (C +0.7%), and Wells Fargo (WFC -0.2%) would be affected - at least in the short term - says the Financial Stability Oversight Council.
Tue, May. 6, 10:02 AM
- In an effort to lure more wealthy customers, Wells Fargo (WFC -0.6%) - through a partnership with American Express (AXP -0.7%) - is launching two new cards offering rewards to big everyday spenders or frequent fliers who also have another account with the bank. The new cards - Propel 365 and Propel World - offer up to an extra 50% in reward points depending on the size of a customer's accounts.
- Just 3% of consumers who charge more than $100K annually on their credit cards do it through a Wells Fargo product, according to a recent Wells presentation. At JPMorgan's February investor day, a slide showing what cards affluent customers choose didn't include Wells Fargo on the page. "We know we're under-penetrated in this customer base," says Beverly Anderson, the head of Wells' consumer financial services group.
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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