NEW YORK (TheStreet) -- It used to be said that good commercial banks were boring.
Wells Fargo Friday reported net income of $1.01 per share vs. 98 cents per share a year earlier. Profits were up year over year for the 16th quarter in a row, based on data from FactSet. Earnings matched analysts' expectations, but investors may have been hoping for more, as Wells Fargo shares sold off Friday morning and were recently changing hands at $51.25, down 56 cents, or 1.1%.
Return on shareholder's equity rose to 14.1% for the quarter, continuing the increases in this measure that began from a near-term low achieved in 2010. This is an outstanding performance relative to competitors given the economic and regulatory climate that exists in the banking industry.
Overall, the net interest margin earned by the bank dropped to 3.15% from 3.40% a year earlier and 3.20% in the previous quarter. Current low interest rates are just killing the basic business of banking. This is a hurdle that all banks are facing, and Wells' results elsewhere indicate what an excellent job its management is doing in general.
The gains Wells Fargo has made on the expense side seem to have been exhausted as costs remained relatively constant from a year ago. However, the bank was able to take lower provisions for loan losses. Credit loss provisions this year, at $217 million, were only one-third of the $652 million logged one year ago. This quarter's number was also down from the $325 million taken last quarter. Credit quality remains a strong point at the bank.
It is so refreshing to write about a large commercial bank where the focus is on the actual banking business, not the investment banking business. Wells Fargo does have an investment banking business, but it is not as large as those of the other major banking institutions and Wells' overall results depends on it much less.
Wells Fargo has been trading at a price-to-earnings ratio of less than 13. With its return on shareholder equity getting close to 15% (or more) again -- a figure not achieved by this bank since 2007 -- it certainly needs to be considered as a potential investment opportunity.
Things are not anywhere near normal in the banking industry these days, as shown by the extremely low net interest margin that Wells Fargo is earning, but the bank is seeming to hold its own, even given the hostile environment. Boring is good!
At the time of publication, Mason had no positions in stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Now let's look at TheStreet Ratings' take on some of these stocks.
TheStreet Ratings team rates WELLS FARGO & CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate WELLS FARGO & CO (WFC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 27.75% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, WFC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- WELLS FARGO & CO has improved earnings per share by 14.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, WELLS FARGO & CO increased its bottom line by earning $3.89 versus $3.36 in the prior year. This year, the market expects an improvement in earnings ($4.10 versus $3.89).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Commercial Banks industry average, but is less than that of the S&P 500. The net income increased by 14.0% when compared to the same quarter one year prior, going from $5,171.00 million to $5,893.00 million.
- The gross profit margin for WELLS FARGO & CO is currently very high, coming in at 93.89%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 27.25% trails the industry average.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, WELLS FARGO & CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full analysis from the report here: WFC Ratings Report