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TheStreet Open House

Wells Fargo: Financial Winner

NEW YORK ( TheStreet) -- Wells Fargo (WFC) was the winner among the largest U.S. financial names on Monday, with shares rising 3% to close at $31.07.

The National Association of Realtors (NAR) reported that its Pending Home Sales Index had risen 2% to 97.0 in January, from a revised 95.1 in December, and 89.8 in January 2011. The pending sales report followed last Wednesday's report that existing-home sales in January had risen 4.3% to a seasonally adjusted rate of 4.57 million, from a revised 4.28 million in December and 4.54 million in January 2011.

Lawrence Yun, the NAR's chief economist, said on Monday that "given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year," and that "with a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations."

The The KBW Bank Index (I:BKX) rose over 1% to close at 45.30.

Wells Fargo's shares have now returned 13% year-to-date following a 10% decline in 2011.

Based on a quarterly payout of 12 cents, the shares have a dividend yield of 1.54%, and shareholders are looking for a boost in Wells Fargo's return of capital following the end of the Federal Reserve's current round of bank stress tests on March 15.

Sterne Agee analyst Todd Hagerman said on Feb. 17 that Wells Fargo "continues to generate excess capital, which should give the company a meaningful buffer against macroeconomic headwinds, as well as position the company well," heading into the stress tests. The analyst expects "an increase in the dividend payout ratio to about 20-25% (vs. the 16-18% in 2011)," as well $60 million in buybacks this year, which is "significantly lower than the company's 2011 200mm share authorization."

Hagerman estimates that Wells Fargo will earn $3.20 a share in 2012, followed by EPS of $3.50 in 2012.

Wells Fargo's shares trade for 1.6 times tangible book value, according to HighlineFI, which is by far the highest price-to-book ratio among the "big four" U.S. banks, reflecting the company's steady and strong earnings performance, with its return on average assets (ROA) ranging from 1.21% to 1.27% over the past four quarters.

The shares trade for 10 times the consensus 2012 EPS estimate of $3.20. The 2012 consensus EPS estimate is $3.69.

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