Week in Preview: Banks Step Into the Earnings Spotlight
Wells Fargo Leads Earnings Winners
Among the financials expected to post double-digit earnings growth this week are Capital One Financial (COF), Morgan Stanley (MS), SLM Corp. (SLM) and U.S. Bancorp (USB), but the week's biggest earnings winner may be Wells Fargo (WFC).
During its fourth quarter, Wells Fargo launched new services and new tools, and also received accolades. Analysts forecast that earnings for the period will come to 61 cents per share, a jump of 86.9% from the same period of last year. The San Francisco-based corporate bank and residential mortgage giant also is expected to post revenue of $21.0 billion for the three months that ended in December. But that's down 7.5% year over year.
Wells Fargo has a long-term EPS growth forecast of 9.5%, which is better than that of JPMorgan and Bank of America. It's forward price-to-earnings (P/E) ratio of 12.4 is less than the trailing P/E ratio, meaning the stock has become a better value. Its PEG ratio is 1.3 and its dividend yield is 0.6%. The First Call consensus recommendation is to buy WFC. Wells Fargo is just one of the big banks analysts expect to boost its dividend. The mean price target is $36.19. Shares have risen from near the 52-week low of $23.02 threes months ago to once again approaching the 52-week high of $34.25, and they are well above the 50-week and 200-week moving averages.
Bank of America Out of the Red
Several banks that had earnings in the red a year ago are anticipated to report a profitable fourth quarter. These include Bank of America (BAC), Citigroup (C), Comerica (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN) and SunTrust (STI).
Analysts anticipate that Bank of America, one of the largest in the U.S., will report Friday that its earnings came to 15 cents per share. That compares to a loss of 60 cents a year ago. The North Carolina-based bank suspended foreclosures, announced the hiring of small business bankers and launched an auto-buying tool during the three months that ended in December, and revenue for that period is predicted to total $25.0 billion, about the same as in the year-ago quarter.
The full-year forecast calls for per-share earnings of 99 cents on $112.7 billion in revenue, compared to a loss of 29 cents per share on $119.6 billion last year. Bank of America earnings were better than expected in the previous three quarters, beating estimates by as much as 18 cents per share.
Bank of America's long-term EPS growth forecast is 8.7% and it has a forward P/E ratio of 12.4 much less than the trailing P/E of 67.1. The PEG ratio is 1.4 and the dividend yield is 0.3%. The consensus recommendation has been to buy BAC for more than 90 days, though some fear the bank could be hit by WikiLeaks revelations. The mean price target is currently $18.19. The share price has grown more than 30% from its 52-week low at the end of November and closed Friday at $15.25.
Diminishing Earnings for Goldman Sachs and Others
Not all is rainbows and lollipops in the sector, though. New York-based Goldman Sachs is expected to post earnings of $3.79 per share for the quarter in which it was hit by a class-action suit and also announced the payout of delayed executive compensation. Those anticipated earnings are less than half of a year ago's $8.20 per share. Analysts also are looking for an 6.4% annual decline in revenue to $9.0 billion for the three months that ended in December.
As for the full year, analysts foresee earnings of $13.24 per share (-40.2%) and revenue of $39.5 billion (-12.6%). But Goldman Sachs earnings have topped consensus estimates most recent quarters, by as much as $3.00 per share.
Goldman Sach's 12% long-term EPS growth forecast is higher than those of rivals JPMorgan and Morgan Stanley, and its forward P/E of 10.7 is less than the industry average. The PEG ratio is 0.9, the dividend yield is 1.0% and the return of equity is 20.4%. Analysts on average still recommend buying GS, and their mean price target is $194.45. Collins Stewart recently initiated the stock with a price target of $205. Shares are about 15% higher than three months ago and ended the week at $175.00.
BB&T (BBT), Northern Trust (NTRS), PNC Financial (PNC) and State Street (STT) are also expected to post per-share earnings smaller than a year ago. First Horizon National (FHN) is expected to post another quarterly loss.
This Week's Other Anticipated Earnings Winners
Analysts are looking for plenty of other companies to offer strong earnings results this week as well, including Amphenol (APH), Cree (CREE), Delta Air (DAL), EZCorp (EZPW), Fastenal (FAST), Freeport McMoRan (FCX), ITT Educational Services (ESI), Johnson Controls (JCI), Linear Technology (LLTC), Parker Hannifin (PH), Rockwell Collins (COL), Union Pacific (UNP) and Xilinx (XLNX).