Wells Fargo Shouldn't Have Been Beat Up As Badly As It Was On The Back Of Earnings
- The bank's fourth-quarter earnings announcement wasn't as bad as it seemed, and because of that, the stock has rebounded almost immediately.
- All but one of the bank's business segments reported revenue and net income which were higher than the previous year, just the opposite of what JPMorgan reported.
- Wells is turning to the $100 billion fashion industry in New York to make some profits there, as it has opened a new commercial banking office in the area.
- WFC has been pounded in the last two weeks as banks have completely fallen out of favor with investors.
- The stock trades at a premium multiple but it is well deserved and will be here to stay.
- I think Wells is worth about $60 in 2015, representing solid upside potential considering the stability and income the stock offers.
Despite The Current Macroeconomic Environment, I See Wells Fargo Going HigherMichael Grogan • Tue, Jan. 20
- Given Wells Fargo's earnings performance throughout 2014, I see the firm as broadly being in line to achieve a five-year price target of $85.
- Despite concerns over low interest rates, Wells Fargo's noninterest income continues to grow.
- While low oil prices may hurt small business lending in the short term, Wells Fargo is sufficiently diversified to withstand such shocks.
- For the fourth quarter of the year, the bank reported revenue of $21.4 billion, which saw growth of 3.3% on a yearly basis.
- Net income for the company saw a 1.78% increase on a yearly basis and was reported at $5.71 billion. Income on a per share basis was reported at $1.02.
- Wells Fargo reported total revenue of $84.3 billion for 2014, which was 0.6% higher than the $83.8 billion revenue recorded in 2013.
- Net income for the year saw a rise of 5.4% and was reported at $23.06 billion. On a per share basis, this translated into earnings of $4.10.
- Interest rate increases will make it easier for the bank to register higher increases in its revenue growth, especially as the mortgage business experiences growth too.
- Wells Fargo managed to deliver growth in what is proving to be another tough quarter for the large banks.
- Higher expenses are a concern, but Wells Fargo is pursuing multiple strategies to drive organic growth.
- Wells Fargo's fair value seems to fall between $51 and $54, but long-term investors may find that the quality outweighs the more modest near-term potential.
Wells Fargo: Strong Core Business And Credit Demand Prospects Justify Premium Valuation
- Wells Fargo reported solid fourth quarter results yesterday, which underscore its premium valuation.
- The U.S. economy is on fire and will do very well in the years ahead, providing crucial earnings tailwinds to banks.
- Wells Fargo should be able to benefit handsomely from continued credit growth in cards, autos, mortgages, and commercial loans.
- Significant share repurchases and dividend payments should benefit shareholders in 2015 as well.
Update: Revisiting Wells Fargo's Triple Threat Investment Thesis
- Wells Fargo recently announced full year 2014 earnings results.
- The company continues to show improvement.
- Perhaps just as pertinent is the idea that Wells Fargo’s “triple threat” investment opportunity remains largely intact.
- Wells Fargo met 4th quarter and full year earnings expectations again showing why it is best in class.
- Wells Fargo is competitive on PE, yield, net margin and total debt management.
- Beyond the numbers, Wells Fargo understands prudence and discipline - same cannot be said of all banks.
- Wells Fargo posted results that were consistent with expectations and consistent with the continued improvement in bank performance we have come to expect.
- Still there are concerns about the future, the continuing drop in the banks' net interest margin and the threat of a less friendly economy in 2015.
- Wells Fargo, among the largest banks, still probably is positioned best of the big ones, to adjust to the new world of banking that is coming.
- In 2014, Wells Fargo earned an incredible $23.1 billion, up $1.2 billion, or 5% YoY. Diluted earnings per share of $4.10 were up 5% YoY - a record for WFC.
- Although it trades at a higher P/E than its competitors, the stock is still attractive on an absolute basis, or relative to the overall market.
- With the recent drop in interest rates, as the nation's No.1 mortgage originator, Wells Fargo should be the prime beneficiary of the resurgence in mortgage refinancing and originations.
- Wells Fargo & Co has posted total returns of 27.21%, 36.19% and 23.72% for the years 2012, 2013 and 2014, respectively.
- WFC appears to be overvalued between 10% and 14% based on the $54.82 year end stock price.
- WFC's 2015 outlook appears poor based on anemic revenue growth and limited ability to prop up earnings in the future by recapturing bad debt reserve.
- The whisper number is $1.05, three cents ahead of the analysts' estimate.
- Wells Fargo has a 39% positive surprise history (having topped the whisper in 16 of the 41 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 is exposed to the falling oil market, but only a little bit.
- The stock is inexpensively valued right now based on 2015 earnings estimates, but I won't be buying it till it hits $50.
- The company pays a decent dividend and should be able to raise it again after the upcoming CCAR results.
Wells Fargo: Focus On Wealth, Brokerage And Retirement Continues To Pay Dividends
- Wells Fargo’s Wealth, Brokerage & Retirement segment continues its impressive performance.
- The number of US HNWIs is set to grow double-digits by 2018.
- Due to Wells Fargo’s leading position within the industry, expect the company to be able to capitalize on such opportunities going into the future.
- International exposure is something that the bank lacks, which could hamper long-term growth.
- 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.
Thu, Jan. 15, 11:18 AM
- Wells Fargo (WFC -0.9%) opens a new commercial banking office in New York City to get a bigger piece of the city's near-$100B apparel business. The middle-market lending initiative is spearheaded by Joe Pollicino, the bank's commercial banking chief in New York, a 33-year industry veteran.
- “Over the past five years, more apparel companies are turning to factoring and asset-based lending to leverage extra cash flow during their cyclical business cycles,” says Wells Fargo Capital Finance EVP Kevin Gillespie.
- Source: Press Release
Wed, Jan. 14, 10:38 AM
- "Virtually all of [the bank's 70M customers] know how to fill a gas tank," says Wells Fargo (WFC -1.1%) CEO John Stumpf on the bank's earnings call, and he thus believes the dive in prices is a great opportunity for the economy and the bank. The WSJ's Emily Glazer notes Stumpf avoids the question on how the stumble in energy might impact the Wells' investment banking operation.
- Webcast and Q4 supplement
- Like Jamie Dimon earlier, Wells Fargo management reminds nervous investors that prices fluctuate. Going back just six years, they note, we've had oil at $30, oil at $140, and oil now at $45. Natural gas has both soared and crashed during that time frame as well. The bank abides.
- Previously: Wells Fargo slips after Q4 earnings meet estimates (Jan. 14)
- Previously: Wells Fargo EPS in-line, beats on revenue (Jan. 14)
Wed, Jan. 14, 8:17 AM
- Q4 net income of $5.7B or $1.02 per share vs. $5.6B and $1.00 one year ago.
- Net interest income of $11.2B up $239M from Q3, with net interest margin of 3.04% down two basis points as deposits continue to roll in.
- Community Banking net income of $3.435B vs. $3.222B one year ago on revenue of $12.835B vs. $12.254B. Mortgage originations of $44B vs. $48B in Q3. 14.1M active mobile customers up 19% Y/Y.
- Wholesale Banking net income of $1.97B vs. $2.111B a year ago on revenue of $6.054B vs. $5.972B.
- Wealth, Brokerage and Retirement net income of $514M vs. $491M a year ago on revenue of $3.647B vs. $3.438B. Retail brokerage client assets of $1.4T up 4% Y/Y. Wealth management client assets of $225B up 5%.
- Conference call at 10 ET
- Previously: Wells Fargo EPS in-line, beats on revenue (Jan. 14)
- WFC -1.1% premarket
Wed, Jan. 14, 8:08 AM
Tue, Jan. 13, 5:30 PM
Tue, Jan. 13, 3:21 PM
- 2015 has opened much like 2014, with interest rates doing the exact opposite of what most expected, and falling sharply. It's a tough start for bank investors who have been counting on higher interest rates to help boost earnings for a number of years.
- In the meantime, deposits keep rolling in, and the pace of lending growth isn't quick enough to absorb all the money. In 2014, loan balances rose 4.4%, but securities holdings popped 12%, and cash assets jumped 22%.
- The good part of falling yields are unrealized gains on those security portfolios - negative a year ago, they're were in the green by about $15B on Dec. 31. More good news, says Goldman's Richard Ramsden: Valuations. The big banks are priced at about 9.9x estimated 2016 earnings, allowing for some nice upside if and when rates do decide to go higher.
- Reporting Q4 results tomorrow are JPMorgan (JPM) and Wells Fargo (WFC -0.8%), and on Thursday are Bank of America (BAC -1.4%) and Citigroup (C -0.9%).
Mon, Jan. 12, 8:43 AM
- The collapse in oil prices is set to crimp one of the few fast growth areas for banks since the financial crisis - lending to the energy industry. Right now, we're just talking about a slowdown in lending, but Charles Peabody - who saw the losses incurred by Texas banks during the 1980s energy slump - expects the current situation to lead to losses as well.
- "It’s been a hot industry, probably a little too hot,” says Cullen/Frost (NYSE:CFR) CEO Dick Evans, whose bank has a sizable energy business. “But it is not time to panic. We have been in the game a long time. I am comfortable with what we have been doing.”
- The flip side of energy issues might be stronger business for banks elsewhere as consumers find themselves with more money in their pockets after filling up.
- Among the more sizable banks, Scotiabank (NYSE:BNS) leads the way with 34.6% of its investment banking revenue coming from energy companies. Next is RBC (NYSE:RY), with 20.2%, and then Wells Fargo (NYSE:WFC) with 14.9% and Citigroup (NYSE:C) with 11.8%. Others include Barclays (NYSE:BCS) with 10.7%, Credit Suisse (NYSE:CS) with 8.1%, and Bank of America (NYSE:BAC) with 7.4%.
Mon, Jan. 5, 1:25 PM
- "We view Wells Fargo (WFC -2.7%) as a core bank holding, but shares have reached our price target and we believe sentiment is now overwhelmingly positive after leading returns in 2014 (+21%, #1 among the top 50 banks)," says Baird's David George, who earlier downgraded the stock from Outperform to Neutral.
- Put the money in another bank? Not so quick, says George, suggesting the Fed could tighten later and be less aggressive than most expect, disappointing those hoping for higher rates to boost profits. Other than Wells Fargo, George sees sentiment highest in PNC Financial (PNC -2.7%), SunTrust (STI -3.9%), and U.S. Bancorp (USB -2.2%).
- Asset-sensitive names like Comerica (CMA -3.7%) and Zions (ZION -3.4%) lagged in 2014, but estimates still look to high.
- Top ideas would be Fifth Third (FITB -2.7%), Capital One (COF -2.4%), and JPMorgan (JPM -3%), but George is having a tough time finding value in the sector.
- Previously: Longtime Wells Fargo bull rings the register (Jan. 5)
Mon, Jan. 5, 1:03 PM
- An improving economy and easing of the regulatory burden will be keys for a big move higher in the big banks this year, says Barclays' Jason Goldberg, seeing double-digit percentage gains for the Citigroup (C -2.9%), Bank of America (BAC -3%), JPMorgan (JPM -2.8%), and Wells Fargo (WFC -2.6%).
- His top pick among the group is Citigroup, where the $65 price target suggests upside of more than 20%.
- Goldman has a different take, and sees the regulatory burden as making JPMorgan worth more broken up than together.
Mon, Jan. 5, 9:59 AM
Dec. 23, 2014, 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)
Dec. 12, 2014, 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)
Dec. 9, 2014, 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
Dec. 8, 2014, 8:54 AM| Comment!
Dec. 5, 2014, 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
Dec. 2, 2014, 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
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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