Join        Login             Stock Quote

Wells Fargo (WFC) PT Lifted To $37, 'Outperform' Reiterated On Attractive Valuation, Positive Outlook

 April 16, 2012 08:07 PM

RBC Capital Markets analyst Joe Morford increased his price target on shares of Wells Fargo & Co. (NYSE:WFC) to $37 from $35 while reiterating its "Outperform" rating, given the company's attractive valuation and positive outlook.

After the company's strong Q1 results, the brokerage lifted Q2-2012 EPS estimate to $0.78 from $0.77, its 2012 estimate to $3.25 from $3.20, and its 2013 estimate to $3.65 from $3.60.

Wells reported Q1-2012 EPS of $0.75, topping both Morford's $0.70 estimate and consensus of $0.72, as strong mortgage banking and a better-than-expected margin more than offset higher expenses. Overall, despite the challenging operating environment Wells generated an impressive 1.31% ROA and 12.1% ROE.

[Related -JPMorgan Chase & Co. (JPM): Capital Concerns Should Ease In 2014]

Bucking the industry trend, Wells' margin increased again, albeit modestly (up 2 basis points to 3.91%), as loan yields rose 6 basis points to 4.16% and funding costs fell 4 basis points to 0.48%.

Meanwhile, end-of-period loans declined 0.4% to $766.5 billion with runoff in the liquidating book outpacing organic growth and portfolio purchases. Overall net interest income essentially held flat (versus a 2% decline modeled).

Excluding securities gains, non-interest income rose 11% sequentially. This was mostly driven by a 21% increase in mortgage banking revenues due to higher origination volumes (up 8%) and gain on sale margins (up 46 basis points to 2.36%). Importantly, with application volumes up 20% sequentially and Harp 2.0 refinancing building, Wells' mortgage business should remain strong in the near term.

[Related -Why dividend-paying utilities stocks could lag again in 2014]

Operating expenses increased 4% sequentially to $13.0 billion due to seasonal pressures and higher incentive compensation tied to the strength in mortgage and capital markets.

Management reiterated its expectation for a $500 million to $700 million decline in expenses next quarter, however, it slightly raised its guidance for the Q4-2012 run-rate to the high-end of the targeted $10.75 billion to $11.25 billion range. Overall the efficiency ratio fell slightly to 60.1%.

NPAs increased 3% to 3.48%/loans following a new regulatory rule that reclassified $1.7 billion of home equity loans as non-accruals. Absent this change, NPAs would have declined 4%. Meanwhile NCOs fell to 1.25%/loans, their lowest level since 2007.

With credit generally improving, management released another $400 million from reserves, which still represented a healthy 2.50%/loans. Finally, capital continued to accumulate with the Tier 1 common equity ratio strengthening 32 basis points to 7.81% under Basel 3.

WFC closed Monday's regular trading up 0.94% at $33.15.

iOnTheMarket Premium


Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageGermany Is On The Rebound - Time To Buy?

Based on this year's 17% spike in the Stoxx Europe 600 Index, it seems investors have found a home in read on...

article imageIs Drought Risk In The American West An Economic Threat?

The historic and ongoing drought in California is getting harder to ignore in terms of its potential impact read on...

article imageFunds Behaving Badly

Discipline is still the key to read on...

article imageGenuine Parts Co. (GPC): This Company's Raised Dividends For 59 Years

There are 253 million cars and trucks driving along U.S. roads. And the average age of those automobiles is read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

Why I Like Financial Stocks For 2014
More Articles on: Finance

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.