Wells Fargo: Long-Term Winner

NEW YORK (TheStreet) - Wells Fargo (WFC) will report its first-quarter earnings before the market opens Wednesday, and like the remaining "big four" U.S. banks, the harsh regulatory environment, headline risk and a slow economic recovery present an excellent opportunity for long-term investors.

The consensus among analysts polled by FactSet is for the company to post earnings of 66 cents a share, increasing from 61 cents last quarter and 45 cents in the first quarter of 2010.

Wells Fargo CEO John Stumpf

Many analysts expect the company to disclose additional mortgage-related expenses in the wake of the Office of the Comptroller of the Currency's cease and desist order against main subsidiary Wells Fargo Bank NA, highlighting "unsafe or unsound practices in residential mortgage servicing and in the Bank's initiation and handling of foreclosure proceedings," with the bank agreeing to improve its processes and procedures and pay an undisclosed fine.

Similar orders were entered into by subsidiaries of Bank of America (BAC) JPMorgan Chase (JPM), Citigroup (C), PNC Financial (PNC), U.S. Bancorp (USB) and other large banks.

During 2010, Wells Fargo made $1.6 billion in provisions for mortgage repurchases, while booking $1.4 billion in repurchase losses. As of Dec. 31, 2010, the company estimated $1.3 billion in remaining mortgage repurchase liability, and Sterne Agee analyst Todd Hagerman, who initiated coverage of Wells Fargo on April 8 with a neutral rating, said "mortgage repurchase requests continue to steadily trend lower and associated costs remain manageable -- easing fears surrounding the company's repurchase exposure."

Hagerman's 12-month price target for Wells Fargo is $36.

TheStreet Ratings has a hold rating for Wells Fargo, noting that the company trades at price/book and price/revenue valuations in line with peers.

According to data supplied by SNL Financial and FactSet, Wells Fargo's shares are trading at 8.3 times forward earnings, based on Monday's closing price of $29.52 and the consensus 2012 earnings estimate of $3.59. This ties the company with Citigroup, with a forward P/E of 8.3, based on Monday's closing price of $4.42 and the 2012 consensus EPS estimate of 53 cents.

JPMorgan Chase -- often considered the "gold standard" among the big four -- was trading for 8.0 times forward earnings, based on Monday's closing price of $43.96 and the consensus 2012 earnings estimate of $5.64 a share. Bank of America was cheapest among the group, with shares trading for just 7.2 times the consensus 2012 EPS estimate of $1.78, based on Monday's closing price of $12.42.

1 2 Next › Last »