Wells Fargo ( WFC ), 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.
Also,Citigroup ( C ) 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 impact.
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 groups.
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.
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