Wells Fargo is projected to report another record financial performance, grinding higher on small incremental gains. CEO John Stumpf continues a conservative and viable strategy which has maintained strong levels of capital, low credit losses, and resulted in a very good return on assets. Though not exciting with quick returns for WFC long traders, the business plan has been consistent and successful.
Financial performance appears to be peaking as incremental quarterly gains are a result of lower credit losses, some periodic expense containment, and net loans are not increasing. That is, higher-yielding net loans (56% of total assets) are decreasing while lower-yielding cash and investments (30% of total assets) are increasing.
That leaves some profitability to be squeezed out of lower expenses or higher revenues such as fees. External acquisitions and/or increased loan demand are about the only avenues remaining for accelerating growth to a material degree. Credit losses decreased at a faster rate than net loans last quarter, reversing and eliminating a possible concern from the prior quarter.
At 3-31-12, I have rated Wells Fargo an “A-” on a scale of A+ to G-. The median rating is “D” and the average rating was “C”. Financial position strength is weighted more than financial performance. The bank ratings review is here.
For the current Q2 2012, the average analysts’ EPS estimate is $0.81, which is a decent +8% increase QoQ and a strong +16% increase YoY.
Estimated QE June 2012 Earnings per Share
Yahoo Finance Estimates: $0.81 avg, $0.76 low, $0.86 high, 32 analysts
Prior Quarter: $0.75
Prior Year: $0.70
Outlook: none provided
Prior Quarter: Wells Fargo Earnings Grind Higher to Another Record on Slowing Growth
Wells Fargo Income Statement Q1 2012 Wells Fargo reported net revenues of $21.64 billion, record net income of $4.25 billion, and record earnings per share of $0.75. For QoQ, these were +5%, +3%, and +3%, respectively. For YoY, these were +6%, +13%, and +12%, respectively. The operating margin of 31% increased to the second highest in several years and the net margin of about 20% was flat QoQ.
Wells Fargo Balance Sheet Q1 2012 Total assets increased to a record $1.33 trillion. The capital to assets ratio increased slightly to a strong 11.01%. Return on Assets improved slightly to a very strong 1.27%. The operating expense ratio is stable at 56%.