Wells Fargo Continues To Deliver, Revised Fair Value $35

by Trefis Team
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WFC
Wells Fargo & Co.
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Wells Fargo (NYSE:WFC) beat expectations with a record quarterly performance for Q1 2012. The bank with the largest market cap earned an unprecedented $4.2 billion for the quarter from revenues of $21.6 billion. [1] The bank posted record revenue figures for the year 2011 even as most competitors such as Bank of America (NYSE:BAC) languished with losses across operating divisions.

See our complete analysis of Wells Fargo here

We updated our price estimate for Wells Fargo’s stock from $31 to $35 and attribute the 15% upward revision to Wells Fargo’s dividend payout ratio, which now considers the effect of the 83% hike in dividends. Also, as the bank has yet to detail its share repurchase program. We have assumed a $5 billion repurchase for this year.

Mortgage Business Lessons Anyone?

Wells Fargo continues to awe investors with its industry leading performance in the mortgage business, especially given that banks are shying away from the business after being badly burnt in 2008. In fact, most competitors continue to fight huge legacy issues related to their mortgage portfolios. Wells Fargo  has been able to do away with all these issues almost completely, with the bank deriving well over a fifth of its value from mortgages.

Wells Fargo originated $129 billion worth of loans this quarter, up from $120 billion in Q4 2011. The bank also services a residential mortgage portfolio worth $1.9 trillion now.

Another factor that helped Wells Fargo’s results is the notable improvement in provision numbers as loan charge-offs declined significantly for the quarter. Charge-off rates for the quarter were at their lowest level since 2007, and provisions set aside saw a $400 million reduction.

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Notes:
  1. Wells Fargo Reports Record Quarterly Net Income, Wells Fargo Press Releases, Apr 13 2012 []
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