Back to top

Analyst Blog

Ushering in good news for its shareholders, Wells Fargo & Company (WFC - Analyst Report) announced an increase in its share buyback authorization by 200 million shares.

Moreover, a quarterly common stock dividend of 22 cents per share, which is scheduled to be paid on December 1, 2012, to stockholders of record on November 9, 2012, has also been announced by Wells Fargo.

The boost in share buyback authorization by Wells Fargo, which has around 5.3 billion shares outstanding, is good news for shareholders. It comes amid an environment where peer companies such as Citigroup Inc. (C - Analyst Report) and Bank of America Corp. (BAC - Analyst Report) have steered clear of such increases in share buybacks while JPMorgan Chase & Co. (JPM - Analyst Report) suspended its temporarily following losses from credit derivatives.

Having posted profits for the past consecutive quarters, Wells Fargo’s financial strength has been buoyed and it gave the company the confidence to propose a raise in dividend as well as boost the level of share buyback activity in 2012 compared to the prior year.

Wells Fargo got the nod from the Federal Reserve in March 2012 and as a matter of fact, the clearance of its capital plan in the stress test this year justified its solid capital position. It went ahead and boosted its shareholders’ wealth by almost doubling its dividend. Consequently, the advancement in share buyback authorization further lifted shareholders’ confidence in the stock.

Notably, Wells Fargo purchased 17 million shares of common stock in the third quarter.  Moreover, it opted for an additional estimated 9 million shares through a forward repurchase transaction, which is expected to be settled in the fourth quarter of 2012.

Earlier in October, Wells Fargo reported its third quarter earnings results.  The company achieved the eleventh consecutive quarter of growth in earnings per share by reporting earnings of 88 cents per share in third quarter 2012, beating the Zacks Consensus Estimate by a penny and comfortably surpassing earnings per share of 82 cents in the prior quarter and 72 cents in the year-ago quarter.  

Results at Wells Fargo benefited from improvements in non-interest income as well as cost control measures.  The company experienced decline in non-interest expenses reflecting positive operating leverage.  It also reported $200 million in reserve release (pre-tax), attributable to improved portfolio performance.

We believe that investors should not be disappointed with their investments in Wells Fargo over the long term given its diverse geographic and business mix, which enables it to sustain consistent earnings growth. Strategic acquisitions will also help expand Wells Fargo’s business and improve profitability. Capital deployment efforts are encouraging. Yet, tepid economic recovery, low interest rate environment and regulatory issues remain our concerns.

Wells Fargo currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering its fundamentals, we also have a long term Neutral recommendation on the stock.

Please login to Zacks.com or register to post a comment.