On Feb 28, 2014, we issued an updated research report on one
of the major regional banks -
Wells Fargo & Company
). 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.
BB&T CORP (BBT): Free Stock Analysis
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PNC FINL SVC CP (PNC): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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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
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
Fifth Third Bancorp
The PNC Financial Services Group, Inc.
). All of these have a Zacks Rank #2 (Buy).