Will Wells Fargo (WFC) beat earnings this season?

We expect Wells Fargo & Company (WFC) to beat earnings expectations when it reports third-quarter 2014 results before the opening bell on Tuesday, Oct 14.

Why a Likely Positive Surprise?

Our proven model shows that Wells Fargo has the right combination of two key ingredients to beat earnings.

Positive Zacks ESP:  The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.98%. This is a very meaningful and leading indicator of a likely positive earnings surprise for the company.
 
Zacks Rank #3 (Hold): Note that stocks with a Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Wells Fargo’s Zacks Rank #3 and ESP of +0.98% makes us confident of an earnings beat on Oct 14.

Factors to Influence Q3 Results

Banks’ efforts to settle lawsuits related to shoddy pre-crisis mortgage practices remained the key trend in the quarter. This was accompanied by dumping unprofitable businesses and concentrating on those with strong potential.

While overall trading volumes remained soft during the quarter, a late pick-up in volatility in September might partly offset the decline in trading revenues. Continued expense control and stable balance sheets should act as tailwinds for the quarter. However, a set of dampeners – dreary consumer and corporate activities and sluggish mortgage banking activities – are likely to drag earnings for Wells Fargo.

Further, uncertainty related to top-line growth looms due to reduced mortgage refinance volume and pressure on net interest margins from the sustained low rate environment. Moreover, litigation costs related to recent settlements might drive down profitability for the bank.

Activities of Wells Fargo during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at $1.02 per share over the last 7 days.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

BB&T Corporation (BBT) has an earnings ESP of +1.41% and carries a Zacks Rank #3. It is scheduled to report its third-quarter results on Oct 16.

Capital One Financial Corporation (COF) has an earnings ESP of +2.08% and carries a Zacks Rank #2 (Buy). It is scheduled to report its third-quarter results on Oct 16.

Wells Fargo, Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) are the first among the banking big shots to report third-quarter results. Therefore, the earnings releases of these banks are going to be a significant indicator of the performance of the key banking sector.

Image courtesy of: Rob Wilson / Shutterstock.com
 
JPMORGAN CHASE (JPM): Free Stock Analysis Report
BB&T CORP (BBT): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
 
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Zacks Investment Research is characterized by a team of experts who are passionate about your investing success and is focused on sharing the same reliable investment research they would want for themselves.

Zacks Investment Research

Zacks Investment Research

Zacks Investment Research is characterized by a team of experts who are passionate about your investing success and is focused on sharing the same reliable investment research they would want for themselves.

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