Wells Fargo Reaffirmed at Neutral - Analyst Blog

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We have reaffirmed our Neutral recommendation on the Wells Fargo & Company ( WFC ) stock following a detailed analysis of the company fundamentals in light of the current economic and regulatory environment, the Wachovia integration and the recently announced acquisitions.

Wells Fargo's third-quarter 2011 earnings of 72 cents per share were in line with the Zacks Consensus Estimate. Results were impacted by lower revenues. However, reduction in operating expenses, drop in provision for loan losses, improved credit quality along with strong capital ratios were the positives during the quarter.

Recent Acquisitions

Wells Fargo's growth plans have historically included a large number of acquisitions, Wachovia being the largest in December 2008. Recently, Wells Fargo announced that it would acquire Bank of Ireland 's ( IRE ) Burdale for €690 million ($898 million) in an effort to broaden its international commercial finance capabilities. The deal is expected to close in early 2012.

Of late, Wells Fargo also agreed to purchase investment boutique firm EverKey Global Partners in an effort to broaden its investment capabilities and provide strategies to meet the needs of its clients. The two companies have signed a definitive agreement in this context. The terms of the deal were not disclosed.

Our Take

Wells Fargo has well justified its reputation as a growth stock among the large-cap banks, with cross-selling as its key strength. Strategic acquisitions will help expand Wells Fargo's business and improve its profitability. Its solid business model, strong capital position and expanded business through the Wachovia acquisition and its integration, expense management and improved credit quality will also support its profit figures.

Yet, revenue growth remains challenged at Wells Fargo. Going forward, we believe the top-line headwinds would persist given the protracted economic recovery. A low interest rate environment and a soft loan demand would keep its margins under pressure. Regulatory issues also seem to cap the company's fee income growth prospects.

Additionally, Wells Fargo currently retains a Zacks #3 Rank, which translates into a short-term 'Hold' rating.


 
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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: IRE , WFC

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