On the positive side, higher long-term rates will ultimately translate to widening net interest margins. Higher long-term rates also mean that Wells Fargo will report rising valuations for its mortgage servicing rights.
Wells Fargo's shares have returned 27% this year, following a 27% return during 2012. The shares trade for 11 times the consensus 2014 EPS estimate of $3.91. The consensus 2013 EPS estimate is $3.71.
Citigroup analyst Keith Horowitz has a neutral rating on Wells Fargo, but on Sunday raised his price target for the shares to $45 from $41, based on his upward revisions of earnings estimates, "to account for the benefit from higher rates as a steepening yield curve eventually works its way into net interest income."
Horowitz raised his 2013 EPS estimate for Wells Fargo by a nickel to $3.80, raised his 2014 EPS estimate by a dime to $4.05, and raised his 2015 EPS estimate by 20 cents to $4.40.
"We see core mortgage production revenues falling 15% q/q in 2Q13, on narrower gain-on-sale margins," Horowitz wrote in a note to clients. Wells Fargo saw only a slight sequential decline in mortgage revenue during the first quarter, because it books gains-on-sale when loans are closed, rather than when a new loans rate is locked-in.
"We believe the spread compression in 1Q will catch up to WFC in 2Q and we see gain-on-sale margins falling 25% q/q, partly offset by a 4% q/q increase in originations, in line with industry forecasts," Horowitz wrote.
Interested in more on Wells Fargo? See TheStreet Ratings' report card for this stock.
-- Written by Philip van Doorn in Jupiter, Fla.