Earnings Watch: Analyst Bearish On Wells Fargo Ahead Of Results

Wells Fargo (WFC), one of the largest banks in the U.S., is expected to report first quarter earnings before the open on Thursday, April 14, with a conference call scheduled for 10:00 am ET.

EXPECTATIONS: Analysts expect earnings per share of 98c on revenue of $21.6B. The consensus range is 91c-$1.02 on revenue of $21B-$22.22B. Along with its last earnings report, Wells Fargo said it expects to operate at the higher end of its targeted efficiency ratio range of 55%-59% for full year 2016.

LAST QUARTER: On January 15, Wells Fargo reported fourth quarter EPS of $1.03, above $1.02 consensus estimate. The bank's quarterly revenue of $21.6B came in slightly below expectations of $21.8B. Capital levels remained strong in Q4, with Common Equity Tier 1 of $142.5B, or 10.7%. Credit losses were $831M in Q4, compared with $703M in Q3, mainly due to $90M in higher oil and gas portfolio losses, as well as seasonal increases in the non-real estate consumer portfolios. Wells Fargo reported Q4 total average loans of $912.3B, up $62.9B, or 7%, and Q4 total average deposits of $1.2T, up $67.0B, or 6%. NEWS: On January 26, Wells Fargo announced a quarterly common stock dividend of 37.5c per share. A week later, Wells Fargo settled with the SEC over municipal securities underwriting violations. The company was ordered to pay a civil money penalty in the amount of $440,000 in connection with the settlement, an SEC filing showed. This came a day after the company reached an agreement in principle with the DoJ, the United States Attorney's Office for the Southern District of New York, the United States Attorney's Office for the Northern District of California, and the United States Department of Housing and Urban Development to pay $1.2B to resolve civil claims relating to the company's Federal Housing Administration lending program. On February 24, the bank said oil and gas nonaccrual loans increased to $844M at December 31, 2015, compared with $76M at December 31, 2014. Almost a week later, on March 1, Wells Fargo announced that it had completed the purchase of the North American portions of GE Capital's (GE) Commercial Distribution Finance and Vendor Finance businesses as well as a portion of its Corporate Finance business, totaling $27.4B of assets, including approximately $24B of loans. On March 28, California Attorney General Kamala Harris and five district attorneys announced a $8.5M settlement with Wells Fargo Bank over alleged privacy violations that included recording consumers' phone calls without timely telling consumers they were being recorded.

STREET RESEARCH: On January 20, Susquehanna analyst Jack Micenko upgraded Wells Fargo to Positive from Neutral, saying the stock's levels at the time offered an "attractive entry point," following the market selloff and its solid execution and profitability relative to peers. Micenko reiterated its $56 price target on Wells Fargo's shares. Last month, on March 29, UBS analyst Brennan Hawken started Wells Fargo shares with a Sell rating and $45 price target, as he believed risks to revenue and credit were not reflected in valuation. The company's ability to maintain flat fee revenues seems "unlikely," the analyst told investors, adding that the credit also appeared to be a greater risk than Wells Fargo's reputation would suggest. On Monday, Sandler O'Neill analyst Scott Siefers downgraded Wells Fargo to Hold from Buy, citing valuation and lack of catalysts to expand the existing premium further. The analyst said that much about the environment for bank stocks has changed. The outlook for the Fed's pace of tightening has become far more muted, the yield curve has become flatter, and energy has taken an even more prominent place in investors' minds, Siefers noted. While, many of the attributes that have made Wells Fargo a "core holding" for investors for so long remain in place, the analyst said he believes it to be an appropriate time to become more neutral on the shares. Siefers lowered his price target on the stock to $51 from $55.

PRICE ACTION: Over the last three months, shares of Wells Fargo have fallen almost 2%. In early afternoon trading ahead of Thursday's earnings report, Wells Fargo's shares are up over 2% to $48.87.