On May 28, 2014, we issued an updated research report on
Wells Fargo & Company
). This regional bank recently reported impressive first-quarter
2014 results. Results were aided by lower non-interest expenses,
increased loan and deposit balances and reduced provision for
credit losses, partially offset by declining mortgage banking
revenues. Though the company shows stability in its fundamentals,
we remain cautious due to the current economic uncertainty across
Wells Fargo reported first-quarter 2014 earnings of $1.05 per
share, beating the Zacks Consensus Estimate by 8.25% and the
prior-year quarter earnings by 5%. Net income was up 14% year over
year to $5.6 billion.
The company exhibited a decent performance in the last four
quarters as evident from its earnings history. Positive earnings
surprises were posted in the last 4 quarters with an average beat
Wells Fargo has implemented company-wide expense management
initiatives. In addition, with the completion of the integration
process and the continuation of the economic recovery, expenses are
anticipated to decrease, thereby providing opportunities for future
improvement in operating leverage. Notably, efficiency ratio for
first-quarter 2014 was 57.9%, within the targeted efficiency ratio
range of 55-59%.
Wells Fargo remains focused on managing capital levels efficiently.
This is well evident from the clearance of the 2014 stress test and
estimated Tier 1 common equity under Basel III increasing to 10.07%
as of Mar 31, 2014, under the advanced approach. Recently, in Apr
2014, the company increased its dividend by 16.7%. Further, Wells
Fargo returned $2.5 billion to shareholders through dividends and
share repurchases. We anticipate such capital deployment activities
to boost investors' confidence.
Despite strong fundamentals, we believe there are certain issues
that may create pressure on the company's financials in the near
term. These include absence of credible improvement in the mortgage
market, declining net interest margin due to low interest rate
environment and the prevailing stringent regulatory landscape.
Following the first-quarter 2014 results, the Zacks Consensus
Estimate over the past 60 days increased 2.2% to $4.13 per share
for 2014. Also, for 2015 it surged 1.2% to $4.33 per share, over
the same time frame.
Wells Fargo currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better ranked finance stocks include
Capital City Bank Group Inc.
Midsouth Bancorp Inc.
Middleburg Financial Corporation
). All 3 stocks carry a Zacks Rank #1 (Strong Buy).
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WELLS FARGO-NEW (WFC): Free Stock Analysis
MIDDLEBURG FINL (MBRG): Free Stock Analysis
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