Wells Fargo Earnings Preview: Second Quarter 2009

Wells Fargo [[WFC]] is scheduled to report their second quarter 2009 results before the market opens on Wednesday, July 22. Based on our analysis, we at EarningsPreviews.com are expecting WFC to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $20.61 billion and EPS of $.36. This would represent an 80% increase in revenues from last year’s $11.46 billion in the same period. The current analyst consensus estimates calls for revenues of $20.31 billion and EPS of $0.32.

 

While credit losses are certain to continue to climb, we expect that strong mortgage activity will enable Wells Fargo to deliver better than expected second quarter results. Mounting credit losses from escalating unemployment and declining incomes will continue to weigh on Wells Fargo’s consumer portfolio.

 

In last year’s catastrophic-like market environment, Wells Fargo was the top performing financial stock. Their shares finished the year down only 2% compared to drops of over 60% by Citigroup, Bank of America, American Express, Morgan Stanley and Goldman Sachs. While the stock’s performance has lagged the sector in 2009, we still view Well Fargo as one of the safest financial stocks.

 

Share Performance

Since the beginning of the year, Wells Fargo’s shares have fallen 14%. In 2008, WFC’s shares fell only 2% as the stock outperformed the 34% decline in the Dow Jones industrial average.

 

Valuation

Shares are now trading at 14x consensus 2010 EPS estimates. This is a slight premium to the relative valuations of their peer group. While we view Wells Fargo as one of the safest stocks in the financial sector, the shares appear to be fully valued.

 

Recommendation: Hold with a $25 price target.

 

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