Market Overview

Wells Fargo Earnings Preview

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A Warren Buffett favorite, Wells Fargo (NYSE: WFC) will report earnings on Friday, April 12 before the opening bell with a conference call scheduled for 10:00 AM EST.

Along with being the first bank to offer online account access in 1995, the bank is known for adhering to a more traditional banking model relying on traditional loans and deposits although highly levered to mortgages.

Expectations

The street expects the company to report EPS of $0.86 per share or $3.60 for the fiscal year on revenues of $21.6 billion. The revenue number represents a 6.1 percent year over year decrease from $23 billion. Analysts expect fiscal year revenue of $85.6 billion.

The Bull Case

Nearly 25 percent of the company’s earnings come from mortgage loans. With the housing market continuing to strengthen, this puts Wells Fargo in a prime spot to capitalize on the trend. In 2012, the company originated $524 billion in mortgages representing a third of all mortgages in the nation.

Related to its mortgage portfolio, the improving housing market and overall economy should cause a sharp drop in the amount credit losses due to foreclosure and delinquencies.

For the past three quarters, company profits have continued to rise. In Q4 of 2012, net income was up 23.9 percent and 21.8 percent in the third quarter.

The Bear Case

The $524 billion in mortgage originations is impressive but many of those were the result of customers refinancing to take advantage of lower interest rates. That wave seems to have topped out. In Q4 2012, the company originated $125 billion in mortgages—the lowest number of the year for Wells.

Eyes will be on this figure to see if the slide in mortgage originations continue. The company needs this number to stay high to counteract the increasing amount of deposits that force it to pay out more interest on funds that are difficult to profitably lend given the current interest rate environment.

Traders should note that despite strong earnings reports, the stock has a habit of selling off after its earnings announcements even when the results are favorable.

Technical Analysis

In a word, healthy. Since its November bottom, Wells Fargo has seen gains of nearly 20 percent that hasn’t been straight up. The stock formed a base from the beginning of the year through most of February only to break to the upside adding 8 percent of the 20 percent move.

The stock is beginning to form an ascending wedge pattern that may become problematic but it continues to remain well above its 50 day moving average and is currently only about $0.75 off of its highs. RSI is slightly high at 61.

Latest Ratings for WFC

DateFirmActionFromTo
Nov 2014BMO CapitalDowngradesOutperformMarket Perform
Oct 2014CitigroupMaintainsNeutral
Oct 2014Argus ResearchUpgradesSellBuy

View More Analyst Ratings for WFC
View the Latest Analyst Ratings

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