This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Wells Fargo Slips as Analysts Disagree

NEW YORK (TheStreet) -- Wells Fargo (WFC) has been the strongest and most consistent earnings performer among the "big six" U.S. banks over the past three years, but analysts have differing views on the stock.

Jefferies analyst Ken Usdin on Friday reiterated his "buy" rating for Wells Fargo, while raising his price target for the shares to $44 from $42, writing in a note to clients, "while the operating and regulatory environment is clearly challenging, revenue diversity and credit/expense leverage should allow the company to grow EPS going forward."

Meanwhile, Sterne Agee analyst Todd Hagerman on Friday downgraded Wells Fargo to a "neutral" rating from a "buy," writing to clients that "although WFC's outlook remains constructive, particularly expense leverage tied to the company's efficiency initiative and legacy servicing/mortgage-related costs, earnings growth is clearly moderating into '14."

Hagerman's price target for Wells Fargo was unchanged, at $42.

Wells Fargo's shares were slipping 0.7% Friday to $40.66, paring its 2013 advance to 19% after gaining 24% last year. The shares trade for 10.5 times the consensus 2014 earnings estimate of $3.90 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $3.71.

The stock's valuation is higher than the rest of the "big six" banking club, and the premium seems warranted, considering how strong and consistent Wells Fargo's earnings performance has been. The company's first-quarter return on average tangible common equity (ROTCE) was 16.27%, while ranging from 14.89% to 16.32% over the past three full years, according to Thomson Reuters Bank Insight.

Here's how Wells Fargo's valuation and ROTCE compares to the rest of the big six:

  • Shares of Bank of America (BAC) closed at $13.21 Thursday and traded for 10.2 times the consensus 2014 EPS estimate of $1.30. The company's first-quarter ROTCE was 3.69%, and the ROTCE ranged from a negative 1.62% to 2.65% over the past three full years.
  • Citigroup (C) closed at $50.29 Thursday and traded for 9.2 times the consensus 2014 EPS estimate of $5.44. The company's ROTCE for the first quarter was 9.52%. The ROTCE has ranged from 4.96% to 8.61% over the past three years.
  • JPMorgan Chase (JPM) closed at $54.17 Thursday and traded for 9.1 times the consensus 2014 EPS estimate of $5.96. JPMorgan's first-quarter ROTCE was 16.82% and the ROTCE has ranged from 14.69% to 14.92% over the past three years.
  • Shares of Morgan Stanley (MS) closed at $26.37 Thursday and traded for 10.3 times the consensus 2014 EPS estimate of $2.55. The company's first-quarter ROTCE was 7.62%. The ROTCE for the past three full years has ranged from 2.23% to 15.29%.
  • Goldman Sachs (GS) closed at $165.82 Thursday and traded for 10.8 times the consensus 2014 EPS estimate of $15.35. Goldman's first-quarter ROTCE was 13.83%, and the ROTCE has ranged from 7.02% to 13.58% over the past three years.

Usdin estimates that Wells Fargo will earn $3.80 a share this year, with EPS rising to $3.85 in 2014.

A major challenge faced by the bank is the decline in mortgage refinancing volume. Usdin expects the company's mortgage revenue to decline from $11.6 billion in 2012 to $10.2 billion this year, and decline further to $8.4 billion in 2014. But the analyst sees some positives, including "room for credit costs to decline," with quarterly provisions for loan losses possibly declining by $100 million, "as severities in residential real estate improve."

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs