Wells Fargo Earnings Preview: Another Record Quarter Expected

Wells Fargo (NYSE: WFC), which has managed consistent growth in revenue and income figures quarter after quarter despite weak economic conditions, is scheduled to report its second quarter 2012 results Friday, July 13, before the U.S. markets open.

Expectations

Analysts on average predict that Wells Fargo will report earnings per share (EPS) of $0.81 and revenue of $21.4 billion for the quarter. In the same period of last year, the company reported $0.70 per share and $20.4 billion in revenue. The company's EPS estimate has remained the same over the past month. Wells Fargo has only fallen short of consensus EPS estimates in one of the past five quarters, and then by just a penny per share. The positive surprise in the first quarter was 2.7 percent.

Wells Fargo attributed better-than-expected first quarter results to improvements in its loan portfolio, as well as gains from trading activities, debt securities sales and equity investments. It was the company's seventh straight quarterly rise in net income.

The forecast for the current quarter has EPS up about 14 percent year-over-year and revenues that are 4 percent higher. So far, analysts expect full-year per-share earnings to be higher than last also by about 14 percent.

The Company

Wells Fargo & Company operates in three segments: Wealth, Brokerage, and Retirement; Community Banking and Wholesale Banking. It serves customers through around 9,000 banking locations and maintains a presence in all 50 states, the District of Columbia and additional countries. The company was founded in 1852 and is headquartered in San Francisco. It is an S&P 500 component with a market capitalization of more than $176 billion - greater than the market caps of main competitors Bank of America (NYSE: BAC), Citigroup (NYSE: C) and J.P. Morgan Chase (NYSE: JPM) (which also reports its second-quarter results on Friday).

During the three months that ended in June, Wells Fargo launched its Abbot Downing brand to serve ultra-high net worth clients, said it would acquire Merlin Securities, launched a new person-to-person money transfer service and announced a partnership with HDFC Bank (NYSE: HDB) of India.

Performance

Wells Fargo's long-term EPS growth forecast is a modest 9.9 percent. Its price-to-earnings (P/E) ratio is higher than the industry average, but so is its operating margin. The return on equity is more than 12 percent, which is higher than those of the competitors mentioned above. Short interest is less than 1 percent of the float. Of 25 analysts who follow the stock, 21 rate it a Buy or Strong Buy. Their mean price target is more than 12 percent higher than the current price.

Shares of Wells Fargo have traded mostly between $30 and $34 since February. The share price is currently over 20 percent higher year to date, around 4 percent below the 52-week high. Shares are also trading above both the 200-day and 50-day moving averages. Over the past six months, the stock has outperformed Citigroup and J.P. Morgan, as well as the S&P 500.

See also: JP Morgan Must Answer Two Questions Upfront