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Wells Fargo: Financial Winner

NEW YORK ( TheStreet) -- Wells Fargo was the winner among the nation's banks on Thursday, with shares rising over 2% to close at $37.42.

The broad indices ended with slight gains, as news of economic stimulus in Japan overshadowed rising U.S. unemployment claims.

The Nikkei 225 in Japan rose by 2.2% after the Bank of Japan announced aggressive monetary easing, increasing its monthly government bond purchases to about 7 trillion yen from roughly 4 trillion yen a month.

The Labor Department reported that initial unemployment claims in the U.S. increased by 28,000 to a four-month high of 385,000 in the week ended March 30 from 357,000 in the prior week. Economists polled by Thomson Reuters were expecting net jobless claims to decline to 350,000.

The four-week moving average for first-time unemployment claims increased by 11,250 to 354,520.

The KBW Bank Index (I:BKX) rose 1% to close at 55.16, with all but two of the 24 index components showing gains.

Big Four Cheap to Forward Earnings

First-quarter earnings season for banks will be kicked off by JPMorgan Chase (JPM - Get Report) and Wells Fargo (WFC - Get Report) before the market opens on April 12. As the broad recovery for bank stocks continues, the "big four" U.S. banks -- which also include Bank of America (BAC - Get Report) and Citigroup (C - Get Report) -- continue to have low relative stock valuations.

For an outline on what to expect from the largest financial players next week, please see TheStreet's earnings preview for the big four.

Jefferies analyst Ken Usdin said in a report on Thursday that, on average, regional banks trade for 1.5 times tangible book value and 12.6 times 2014 earnings estimates. The big four provide a stark comparison to those numbers.
  • JPMorgan's shares closed at $47.49 Thursday, trading for 1.3 times tangible book value, according to Thomson Reuters, and for 8.2 times the consensus 2014 earnings estimate of $5.81 a share. Analysts expect the company to report first-quarter earnings of $1.39 a share next Friday. The consensus EPS estimate for all of 2013 is $5.48.
  • Wells Fargo's shares trade for 1.7 times tangible book value and for 9.6 times the consensus 2014 EPS estimate of $3.89. When the company reports its first-quarter results next Friday, analysts expect EPS of 88 cents. The consensus EPS estimate for all of 2013 is $3.65.
  • Bank of America's stock closed at $11.90 Thursday, trading for 0.9 times tangible book value and for 9.1 times the consensus 2014 EPS estimate of $1.31. The company is scheduled to announce its first-quarter results on April 17, with a consensus EPS estimate of $23 cents. The consensus EPS estimate for all of 2013 is 98 cents.
  • Citigroup's shares closed at $42.77 Thursday, trading for 0.8 times tangible book value and for 8.2 times the consensus 2014 EPS estimate of $5.22. Analysts on average expect Citi to post first-quarter EPS of $1.18 when the company reports on April 15. The consensus EPS estimate for all of 2013 is $4.61.

Wells Fargo

With "limited near-term catalysts for positive EPS revisions," Usdin wrote that his research team remains "biased toward a barbell strategy," with 12 picks among regional bank stocks.

Wells Fargo is among the banks rated "buy" by Usdin, with a price target of $42.00. The analyst estimates the company will report first-quarter earnings of 87 cents a share, declining from 91 cents in the fourth quarter, and 88 cents in the first quarter of 2012.

"We expect WFC's eleven quarter streak of Q-Q EPS growth to come to an end as softer mortgage banking and seasonality are simply too much to overcome," Usdin wrote. Jefferies expects Wells Fargo's mortgage revenue to decline by $200 million from the fourth quarter, from lower gain-on-sale margins as the market has pushed up long-term rates.

On a positive note, Usdin has "confidence in WFC's ability to ratchet back expenses," and he expects a relatively small narrowing of the company's net interest margin from the fourth quarter.

-- 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 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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