Consumer and retail banking stalwart Wells Fargo & Company (NYSE: WFC) is one of the world�s leading financial sector bellwethers.� Along with rivals JPMorgan Chase & Co. (NYSE: JPM), Bank of America (NYSE: BAC) and Citigroup (NYSE: C), the San Francisco-based bank�s fortunes set the tone not only for the financial sector at large, but to a large extent the entire economy.� WFC shares have been all over the map in 2010 (along with the rest of the general market), but recent developments in the company argue in favor of a new leg up for the stock in the months ahead.� Here are five reasons why investors should bank on Wells Fargo.
Solid Wells Fargo Earnings. On July 21, Wells Fargo said that its net income for the quarter ended June 30 was $2.88 billion, up from $2.58 billion last year. Earnings per share came in at 55 cents, slightly lower than the 57 cents per share the company earned in the same quarter a year ago, but that decline was due chiefly to a 17% increase in the total number of outstanding shares.� The 55 cents per share was well above the 48 cents per share banking analysts were expecting.
Loan Loss Improvements at WFC. Part of the reason for Wells Fargo�s strong Q2 was a marked improvement in loan losses.� Losses were reduced in several key areas, including home equity loans, mortgages, consumer lines of credit and loans, auto dealer services and credit cards. The company was able to reduce its provision for credit losses (money set aside for loans expected to go into default) by 22% to $3.99 billion, a big improvement over the $5.09 billion provision for credit losses in Q2, 2009.
Trio of Positive Assessments. After the Q2 numbers were released, several research firms rushed to react positively to the news.� Analysts at Keefe, Bruyette & Woods raised their 2010 earnings estimates to $2.45 a share from $2.30 a share while maintaining their $36 price target and �Outperform� rating on the stock. Sterne Agee & Leach Inc. analysts raised their 2010 profit outlook $2.33 a share from $2.02 a share while holding to their $37 price target and �Buy� recommendation.� FBR Capital took an even more bullish step toward WFC, upgrading the stock �Outperform� from �Market Perform,� citing improvements in credit conditions.� FBR maintained its $31 price target while raising full year earnings estimates to $2.20 a share from $1.95 a share.
The FinReg Dance. Now that financial regulatory reform is the law of the land, banks are now able to begin grappling with the changes that might affect them.� To be certain, uncertainty over how far financial reform legislation, or FinReg, would reach into bank operations put a damper on the entire banking sector over the past several months.� But according to a now famous report by Fox Business Network reporter Charlie Gasparino, banks have already found the loopholes in the legislation they need to help ameliorate most of FinReg�s damage. According to Gasparino, �A consensus is forming among Wall Street chief executives that the costs of financial reform will be significantly less than originally predicted.�� The bottom line here is now that banks know what�s in FinReg, rest assured they will find ways to work around the new rules.
Buy the Dip in WFC Stock. Over the past three months (through July 29), Wells Fargo shares have been hit with a 16.4% decline.� That decline pushed the stock to a low of $24.60 on July 1, but since then the shares have been on tear. WFC is up nearly 12% from its low, and the stock now trades above its technically significant 50-day moving average.� Based on the heavy selling over the last three months, and the subsequent rebound in the stock over the past four weeks, now may just be the perfect time to bank on Wells Fargo shares.
As of this writing, Jim Woods did not own a position in Wells Fargo stock.
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