3 Banks Holding Q1 Earnings Surprises From Guggenheim

NEW YORK ( TheStreet) -- Guggenheim Securities analyst Marty Mosby expects a very solid first quarter for large-cap U.S. banks.

The analyst expects the 16 large-cap banks covered by his firm "to exceed market expectations by 6% in 1Q12 and produce 4% sequential EPS growth," through accelerated mortgage refinancing, "a rebound in investment banking activities, and a favorable impact from improved market valuations on trust and investment fees," along with continued credit quality improvement.

Guggenheim on Wednesday upgraded Bank of America ( BAC) to a "Buy" rating from a neutral rating, while maintaining his $11 price target, saying that the shares "have traded down 15%, since peaking at $10 following the company's successful result from the Federal Reserve's annual stress tests in March, creating "a 29% upside potential to our price target, which we believe, even with BAC's heightened risk profile, justifies a BUY rating."

Bank of America's shares have returned 54% year-to-date, through Tuesday's close at $8.54, following a 58% decline during 2011. Putting those numbers in perspective, the shares are down 36% over the past 52 weeks.

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Despite the year-to-date run-up, Bank of America's shares still trade for just 0.7 times the company's reported Dec. 30 tangible book value of $12.95. The shares trade for eight times the consensus 2013 earnings estimate of $1.06, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate 70 cents.

Bank of America will report its first-quarter results on April 19, with a consensus EPS estimate of 12 cents. Mosby is way ahead of the consensus, estimating BAC will post first-quarter earnings of 20 cents, with a full-year 2012 estimate of $1.01.

Mosby's $11 price target for BAC "is based on taking BAC's projected year-end 2013 tangible book value per share of $15 and netting out our worst-case loss expectation of $70 billion, or $4 unfavorable impact to tangible book value (75% of the recent Fed Stress Test losses)."

The following are the two large-cap banks that Guggenheim says are "positioned to create 15-20% earnings per share growth in 2012," with each reporting "favorable earnings surprises in the last five quarters." Mosby believes this trend will continue when first-quarter results are announced.

Wells Fargo
Shares of Wells Fargo ( WFC) closed at $32.92 Tuesday, returning 20% year-to-date, following a 10% decline during 2011. Based on a 22-cent quarterly payout, the shares have a dividend yield of 2.67%.

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The shares trade for 2.1 times tangible book value, according to HighlineFI, and for nine times the consensus 2013 EPS estimate of $3.67. The consensus 2012 EPS estimate is $3.23.

Wells Fargo has been a strong earnings performer over the past two years, with a return on average assets (ROA) of 1.25% during 2011, increasing from 1.01% in 2010. The company's return on average common equity was 11.93% in 2011, increasing from 10.33% the previous year.

The company is scheduled to report its first-quarter results on Friday, with a consensus EPS estimate of 73 cents. Mosby estimates that Wells Fargo will post first-quarter EPS of 78 cents, with a full-year 2012 estimate of $3.43.

Guggenheim rates Wells Fargo a "Buy," with a $43 price target.

Mosby said on March 30 that "over time, if management can replicate the prior era of consistent earnings per share growth, we expect WFC to produce 13% to 18% in annualized total shareholder returns," and that "excess capital and compressed valuations should allow dividend yields to continue to build."

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

U.S. Bancorp
Shares of U.S. Bancorp ( USB) closed at $30.34 Tuesday, returning 13% year-to-date, following a 2% return during 2011. Based on a quarterly payout of 19.5 cents, the shares have a dividend yield of 2.57%.

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The shares trade for 2.8 times tangible book value, and for 10 times the consensus 2013 EPS estimate $2.97. The consensus 2012 earnings estimate is $2.69.

The Minneapolis-based lender's earnings performance over the past two years has been even stronger than Wells Fargo's, with a 2011 ROA of 1.51%, increasing from 1.16% in 2010, and a return on common equity of 15.8% during 2011, improving from 12.7% the previous year.

USB will report its first-quarter results on April 17, with a consensus EPS estimate of 64 cents. Mosby expects the company to report first-quarter earnings of 68 cents, with a full-year 2012 estimate of $2.90.

Guggenheim rates U.S. Bancorp a "Buy," with a $42 price target. Mosby expects USB to "experience double-digit earnings per share growth from organic revenue growth through 2012."

Interested in more on U.S. Bancorp? See TheStreet Ratings' report card for this stock.

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

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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.