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Wells Fargo: Sum of All Earnings Fear Loser

The company repurchased 27 million shares during the fourth quarter and said that a forward repurchase of another 6 million shares would settle during the first quarter.

Jefferies analyst Ken Usdin said in a report that although the market was focusing on the narrowing net interest margin, "we see flat net interest income as a decent result given huge deposit growth." However, the analyst added that "sustainability of mortgage banking will come into question given a 16% decline in its unclosed pipeline."

Usdin rates Wells Fargo a "Buy," with a $39 price target, and estimates the company will earn $3.55 a share during 2013, with EPS increasing to $3.65 in 2014.

Wells Fargo's fourth-quarter return on equity not return on average tangible common equity, which is often used for comparison was 11.97%, which was up from 10.95% a year earlier, and measured up quite well in the current environment for the largest U.S. banks.

During the preceding four quarters through the third quarter of 2012, Wells Fargo's operating ROE was 12.03%, according to Thomson Reuters Bank Insight, exceeding the ROE of the rest of the "big four" U.S. banking club and underlining the relatively low multiple for the company's shares to earnings estimates:

  • For Bank of America (BAC - Get Report), the return on equity for the 12-month period ended Sept. 30 was 2.32%. The company's shares closed at $11.63 Friday, trading for 12 times the consensus 2013 earnings estimate of 97 cents, which is the highest forward price-to-earnings ratio among the big four. The consensus 2014 EPS estimate is $1.26. The company will announced its fourth-quarter results on Jan. 17, and on Monday said that earnings would be only ""modestly positive," as a result of its mortgage putback settlement with Fannie Mae (FNMA) and because of its participation in an $8.5 billion mortgage foreclosure settlement with federal regulators.
  • For Citigroup (C - Get Report), the operating ROE for 12 months through Sept. 30 was 3.98%. Citi's shares closed at $42.34 Friday, trading for 9.1 times the consensus 2013 EPS estimate of $4.67. The consensus 2014 EPS estimate is $5.16.
  • JPMorgan's (JPM - Get Report) operating ROE for the 12-month period ended Sept. 30 was 10.42%. The company's shares closed at $46.14 Friday, trading for 8.7 times the consensus 2013 EPS estimate of $5.31, which is the lowest forward P/E among the big four. The consensus 2014 EPS estimate is 2014. JPMorgan will announce its fourth-quarter results on Jan. 16.

Wells Fargo's shares trade for 9.7 times the consensus 2013 EPS estimate of $3.61. The consensus 2014 EPS estimate is $3.87.

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

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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