Wells Fargo Continues Organic Growth Strategy - Analyst Blog


On Feb 28, 2014, we issued an updated research report on one of the major regional banks - Wells Fargo & Company ( WFC ). The company recently reported impressive fourth-quarter 2013 results with lower operating expenses and lower provision for credit losses, which were partially offset by a decline in revenue. Though the company's strong capital base and decent growth in loan and deposit balances are encouraging, we remain cautious due to the macroeconomic headwinds across the industry.

Wells Fargo reported earnings of $1.00 per share, lagging the Zacks Consensus Estimate by 2 cents. Further, this was higher than the earnings of 99 cents posted in the year-ago quarter.

With this, the company delivered positive earnings surprises in all 4 quarters of 2013 with an average beat of 3.81%.

Driven by increased interest income from trading assets and investment securities along with lower funding costs, net interest income was $10.8 billion, up 2% year over year basis. Further, prudent expense management led to a 6% decline in non-interest expense.

As of Dec 31, 2013, total loans improved 3.3% year over year to $825.8 billion while average total deposits were $1.1 trillion, up 9% from the prior-year quarter.

However, total revenue was down 5.5% year over year to $20.7 billion. Net interest margin decreased 30 basis points year over year to 3.26%. Further, non-interest income declined 13% on a year-over-year basis to $9.9 billion, primarily due to falling mortgage banking revenues and other income.

Being a large cap bank, Wells Fargo has enough positive traits to improve its operating efficiencies. These include the company's cost control measures, strong balance sheet, strategic acquisitions, decent credit quality and efficient capital deployment activities. However, we believe that absence of credible improvement in the mortgage market, decline in net interest margin and the stringent regulatory landscape may pose threats to the company's financials in the near term.

Following the results, the mixed opinion of analysts is evident from the movement of the Zacks Consensus Estimate over the past 60 days. The Estimate for 2014 remained stable at $4.03 per share. For 2015, it declined 0.5% to $4.25 per share.

Wells Fargo currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Stocks that are worth considering in the sector include BB&T Corp. ( BBT ), Fifth Third Bancorp ( FITB ) and The PNC Financial Services Group, Inc. ( PNC ). All of these have a Zacks Rank #2 (Buy).

BB&T CORP (BBT): Free Stock Analysis Report

FIFTH THIRD BK (FITB): Free Stock Analysis Report

PNC FINL SVC CP (PNC): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BBT , FITB , PNC , WFC



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