Will Wells Fargo (WFC) Miss Earnings? - Analyst Blog

Wells Fargo & Company WFC is scheduled to report its first-quarter 2014 results before the opening bell on Friday, Apr 11.

In the last quarter, it delivered a 2.04% positive earnings surprise on the back of prudent expense management. This represented the 16th straight quarter of positive earnings surprise. Will Wells Fargo be able to keep the earnings streak alive? Let's see how things have shaped up for this announcement.

Factors to Influence 1Q Results    

We expect expense control and stable balance sheets to be the key earnings drivers in the first quarter. Moreover, a favorable equity and asset market backdrop, falling unemployment, a progressive housing sector and a flexible monetary policy are making the road to growth even smoother.

Yet, uncertainty related to top-line growth looms due to reduced mortgage refinance volume and pressure on net interest margins from the sustained low rate environment. Moreover, litigation costs related to recent settlements might drive down profitability in the first quarter.

Activities of Wells Fargo during the first quarter of the year were adequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for the quarter increased 1.0% to 97 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Wells Fargo is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP:  The Earnings ESP for Wells Fargo is -3.09%. This is because the Most Accurate estimate of 94 cents is below the Zacks Consensus Estimate of 97 cents.

Zacks Rank: Wells Fargo's Zacks Rank #2 (Buy), however, increases the predictive power of ESP. That said, we also need to have a positive ESP to be confident of an earnings surprise call.

Other Stocks to Consider

Here are a couple of stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The earnings ESP for The PNC Financial Services Group, Inc. PNC is +2.41% and it carries a Zacks Rank #3 (Hold). The company is scheduled to release its first-quarter results on Apr 16.

BankUnited, Inc. BKU has an earnings ESP of +6.82% and carries a Zacks Rank #2 (Buy). It is expected to report its first-quarter results on Apr 23.

Wells Fargo and JPMorgan Chase & Co. JPM, with exposure in almost all banking businesses, are the first among the banking big shots to report first-quarter earnings. Therefore, the earnings releases of these banks are going to be a significant indicator of the performance of the key banking sector.