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Shares of Wells Fargo & Company (WFC - Analyst Report) have recorded a year-to-date return of 29.8%. Impressive organic growth, expense reduction initiatives and strong capital deployment activities of the company acted as the positives behind this growth story. However, we are not very optimistic about these positives translating to further price appreciation down the road as there will be significant pressure on its top line.

After analyzing its fundamentals following third-quarter 2013 earnings release, we would suggest to stay invested in it but not to further add it to your portfolio.   

Why this Stance?

Wells Fargo achieved the fifteenth consecutive quarter of growth in earnings per share by reporting earnings of 99 cents per share in third-quarter 2013. Results improved from earnings per share of 98 cents in the prior quarter and 88 cents in the year-ago quarter. Also, it beat the Zacks Consensus Estimate by 2 cents.

Results at Wells Fargo reflected growth in total loans and deposits amid a challenging economy and prudent expense management. Moreover, a strong capital position and returns on assets and equity acted as the positives. It also reported $900 million in reserve release (pre-tax), attributable to an improved credit performance.

However, we believe that the top-line headwinds would persist, given the protracted economic recovery. A low interest-rate environment would keep its margin under pressure. Notably, the net interest margin dipped 38 basis points year over year to 3.44% in the first nine months of 2013. Though growth in balance sheet is likely to benefit its net interest income, the pressure on net interest margins would hamper such positives.

Though the U.S. economy posted stable to improving economic data during the course of the first nine months of 2013, including favorable developments in unemployment and housing, concerns about the outlook on the global economy and continued political uncertainty persist.

Over the last 60 days, the Zacks Consensus Estimate for 2013 increased about 1% to $3.87 per share as 12 of the 20 estimates were revised higher. For 2014, the Zacks Consensus Estimate rose slightly to $4.03 per share, as 7 of the 20 estimates moved north. Currently, Wells Fargo carries a Zacks Rank #3 (Hold).

Other Banks to Consider

Some better-ranked stocks in the banking sector include First Interstate Bancsystem Inc. (FIBK - Snapshot Report), German American Bancorp Inc. (GABC - Snapshot Report) and PrivateBancorp, Inc. (PVTB - Snapshot Report). All these 3 stocks carry a Zacks Rank #1 (Strong Buy).

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