Wells Fargo (
), the biggest U.S. mortgage lender, is rebounding as the
foreclosure crisis subsides and demand for housing recovers.
Profit at the San Francisco-based bank has picked up for two
straight quarters, from a 12% gain in Q1 to subsequent increases
of 17% and 22%. Revenue rose 6% in the latest quarter after
edging up 2% in the prior period.
On Thursday, the Commerce Department said new-home sales rose
4.4% in November to the fastest pace since April 2010.
) reaffirmed its neutral rating on Wells Fargo and boosted its
price target by $2 to $37, a 9% premium to the current share
price. Despite the price upgrade, Citi said there's a "downside
bias" to Wells' earnings outlook.
U.S. bank earnings jumped by the most in six years during the
third quarter, climbing 6.6% to $37.6 billion from the same
period last year, the government said earlier this month. The
gain came as banks' revenue picked up and they set aside less
money to cover possible losses from bad loans.
Yet Wells and other banks remain vulnerable to the fiscal
cliff, a combination of sharp tax hikes and spending cuts due to
take effect Jan. 1. Analysts warn the economy could fall into
recession next year if Congress fails to take steps to soften the
Senate Majority Leader Harry Reid said Thursday a deal to
avert the cliff by Jan. 1 appeared unlikely.
So far this year, Wells Fargo's stock is up 23%, about double
the S&P 500's gain, and it's working on a cup-with-handle
base with support at the 10-week line. However, its 50-day line
is crossing its trailing 200-day line, a sign of weakness.
Meanwhile, after slashing its dividend during the financial
crisis, Wells has quadrupled the payout to 22 cents a share over
the past three years. That brings its annual dividend yield to
2.6%, well above the S&P 500 average of 2.1%.
Wells is among the top stocks in the 22-member Banks-Money
Center industry group, which was ranked 18th out of the 197
Wells' Composite Rating is 91, fourth in the group.
Institutional sponsorship has increased for five straight
quarters, with the Fidelity Magellan Fund among those boosting
stakes in the latest quarter.