6 Bank Stock Picks for Earnings Season From FBR

Wells Fargo
Shares of Wells Fargo (WFC) closed at $33 Friday, up 21% year to date, following a 10% decline in 2011.

The shares trade for twice their tangible book value, according to HighlineFI, and for nine times the consensus 2013 earnings estimate of $3.67 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $3.26.

Based on a quarterly payout of 22 cents, the shares have a dividend yield of 2.67%.

Wells Fargo reported first-quarter earnings of $4.2 billion, or a record 75 cents a share, beating the consensus EPS of 73 cents. The company reported a 21% quarter-over-quarter increase in mortgage banking revenue, to $2.9 billion, supporting total revenue of $21.6 billion, which exceeded the consensus estimate of $20.5 billion.

Following a robust $129 billion in first-quarter mortgage loan originations, Chief Financial Officer Tim Sloan indicated that Wells Fargo would also have a strong second quarter for mortgage volume, saying that "the unclosed mortgage pipeline was solid at $79 billion at quarter-end."

Wells Fargo reported total first-quarter noninterest expenses of $13 billion, increasing from $12.5 billion in the fourth quarter, and $12.7 billion during the first quarter of 2011. Sloan said that the company expects "a $500-$700 million overall reduction in noninterest expense during the second quarter."

Miller rated Wells Fargo outperform with a $39 price target, and said on April 16 after the company reported its first-quarter results that "earnings quality was somewhat disappointing as expenses were higher than expected and management guided toward a higher run-rate, overall loan growth was nonexistent, and the [net interest margin] was supported by growth in trading assets and securities."

On a more positive note, Miller said that "operating revenue grew again in the quarter as the company recognized strong mortgage banking earnings," and that "Wells Fargo continued to gain market share, resulting in higher origination volumes, and the gain-on-sale margin rose, driving a $500 million increase in mortgage banking fees."

Miller estimated that Wells Fargo will earn $3.12 a share for all of 2012, followed by 2013 EPS of $3.65.

Interested in more on Wells Fargo? See TheStreet Ratings' report card for this stock.

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