WELLS FARGO & CO. $44 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $233.2 billion; Price-to-sales ratio: 2.8; Dividend yield: 2.7%; TSINetwork Rating: Average; www.wellsfargo.com) set aside $652 million to cover bad loans in the three months ended June 30, 2013, down 63.8% from $1.8 billion a year earlier. That helped push up its earnings by 19.7%, to $5.3 billion, or $0.98 a share. A year ago, it earned $4.4 billion, or $0.82 a share.
Revenue rose 0.4%, to $21.4 billion from $21.3 billion. Borrowers continue to refinance their mortgages at lower rates, which cuts Wells Fargo’s interest income. However, the bank is doing a good job of getting its clients to sign up for more services, such as credit cards and wealth management. As a result, income from fees and other sources rose 3.7%.
In addition, Wells Fargo continues to cut its operating costs, like salaries and rent. In the latest quarter, its efficiency ratio (non-interest operating expenses divided by revenue— the lower, the better) improved to 57.3% from 58.2% a year ago.
The stock has gained 30% since the start of 2013. But even with the rise, it trades at just 11.6 times the bank’s projected 2013 earnings of $3.80 a share.
Wells Fargo recently passed the Federal Reserve’s latest “stress test,”which measures how well banks and other financial firms would cope with a sharp jump in unemployment, falling stock prices and other unfavourable economic conditions. In response, the bank raised its dividend by 20.0%. The new annual rate of $1.20 a share yields 2.7%.
Wells Fargo is a buy.
