We are reiterating our Neutral recommendation on Wells Fargo & Company (WFC) following the company’s fourth quarter and full-year earnings release. The reaffirmation follows our analysis of the company’s fundamentals, strategic acquisition, threats and opportunities.
Fourth Quarter and Full-Year 2010 Results
Wells Fargo’s fourth quarter 2010 operating earnings came in at 61 cents per share, a penny short of the Zacks Consensus Estimate and a penny above the prior quarter. However, the results fared much better than 8 cents earned per share in the year-ago quarter.
Quarterly results at Wells Fargo reflected a better-than-expected increase in revenues. The company also experienced a decent reserve release of $850 million as a result of improved portfolio performance. Yet, an increase in expenses was the downside.
For full-year 2010, the company earned $2.21 per share, missing the Zacks Consensus Estimate of $2.24 but substantially above the prior year’s earnings of $1.75.
Competitors
U.S. Bancorp (USB), one of Wells Fargo’s peer group companies, reported fourth quarter 2010 earnings of 49 cents per share. However, excluding significant items, earnings came in at 46 cents per share, in line with the Zacks Consensus Estimate.
Quarterly results of U.S. Bancorp reflected growth in revenues, as a result of the business growth initiatives taken by the company, including acquisitions. Credit metrics also showed an improvement. However, the positives were offset by an increase in expenses.
However, Wells Fargo’s close competitor, JPMorgan Chase & Company (JPM) held the banking banner high with impressive results. The company reported fourth quarter earnings of $1.12 per share, handily beating the Zacks Consensus Estimate of $1.00. The better-than-expected fourth quarter earnings resulted from higher non-interest revenue and a slowdown in provision for credit losses.
Our Take
We believe that with its diverse geographic and business mix, Wells Fargo is well positioned compared with its peers. The Wachovia acquisition and the demise of some smaller players helped it garner a larger share in the mortgage markets.
Yet the recent financial regulations are expected to have a negative impact on both top and bottom-line results of the company. Besides, costs associated with loan resolutions and loss mitigations are also expected to remain near-term dampeners.
Wells Fargo currently retains its Zacks #3 Rank, which translates to a short-term Hold rating.
JPMORGAN CHASE (JPM): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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