Wells Fargo's Third Quarter Earnings
Wells Fargo (WFC) is the world's most well run and stable banks, which just happens to have Warren Buffett as a shareholder. The bank has performed well over the last seven years, focusing its business on consumer banking unlike JP Morgan which focuses more on investment banking and wealth management.
Unlike like its competitors like JP Morgan, Wells Fargo did quite well during the third quarter. The banks saw its revenues increase by 3% to $21.9 billion and saw pretax profits increase by 6% to $9.5 billion. Wells Fargo's net income grew by 1% to $5.7 billion, and earnings per share grew by 3% to $1.05. The 3% growth in earnings per share is thanks to Wells Fargo's stock repurchase program. Total average loans grew by 7% to $895 billion and ended the quarter with loans of $905 billion. The company's multi-billion loan portfolio is high quality since its net charge off rate fell to 0.31 from 0.32 a year ago.
Wells Fargo continues to hold its strong capital position with a Common Equity Tier 1 ratio of 10.7%. The company has the highest return on assets of 1.36% compared to its competitors. Wells Fargo also has the highest return on equity at 12.6% compared to their competitors. The banks high returns on equity translates into high returns for shareholders. Since the financial crisis, Wells Fargo has outperformed all of its top competitors. The company has return over 120% to shareholders over the last seven years.
Wells Fargo's third quarter earnings reinforces my investment thesis in the bank. Over the last 10-years Wells Fargo has averaged $33.6 billion in operating earnings or $6.43/share. The company produced operating earnings of $33.9 billion last years or $6.40/share. Currently the bank is selling for 8.5x its 10 year operating earnings and 7.8x last years operating earnings. Wells Fargo is highly profitable and the most dominant commercial bank in the United States. Investing in Wells Fargo at its current market price you'll getting a operating earnings yield of 12% and a pretax return of 14% going forward.
Posted in ...Market Commentary