We have recently reaffirmed our long-term Neutral recommendation
Wells Fargo & Co.
) based on its solid fundamentals and strategic acquisitions amidst
the current stressed operating environment.
We believe that investors should not be disappointed with their
investments in Wells Fargo over the long term given its diverse
geographic and business mix, which enables it to sustain consistent
earnings growth. The company has overcome the financial crisis well
and as of the second quarter of 2012, it has achieved growth in
earnings per share for ten consecutive quarters.
Wells Fargo reported earnings of 82 cents per share in second
quarter 2012, which surpassed the Zacks Consensus Estimate of 81
cents. Its earnings per share also augmented 9.3% sequentially and
17.1% year over year, reflecting improvements in mortgage banking
business and credit quality. It experienced record quarterly
mortgage applications and increases in lending to consumers and
Moreover, strategic acquisitions will also help expand Wells
Fargo's business and improve profitability. Notably, in the first
half of 2012, the company completed three acquisitions with
combined total assets of $4.5 billion. Further, on August 1, the
company completed the acquisition of a prime brokerage and
technology provider with assets of approximately $280 million. In
addition, it is capitalizing on the deleveraging activities of
Also, it has announced consecutive dividend increases over the past
three years with the latest hike of 83.3% being announced in March
Yet, increasing demands for mortgage buybacks, tepid economic
recovery, low interest rate environment and regulatory issues
remain our concern. But we believe that given its solid
profitability potential, it can efficiently manage the mortgage
repurchase issue and navigate through the current stressed
Moreover, the shares of Wells Fargo, which competes with
Fifth Third Bancorp
M&T Bank Corp.
) among others, retain a Zacks #3 Rank, which translates into a
short-term Hold rating over the short term.
FIFTH THIRD BK (FITB): Free Stock Analysis
M&T BANK CORP (MTB): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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