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Wells Fargo & Co.

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Earnings estimates for Wells Fargo & Co. (WFC - Free Report) have been advancing since this banking giant posted robust second quarter results, which marked the tenth straight quarter with earnings per share growth. Moreover, this Zacks #2 Rank (Buy) company has a decent dividend yield of 2.6%.

Strong Second Quarter Results

On July 13, Wells Fargo reported second quarter 2012 earnings per share of 82 cents, surpassing the Zacks Consensus Estimate of 81 cents by 1.2% and the year-ago earnings of 70 cents by 17.1%. The increase was mainly due to improvements in the mortgage banking business and credit quality. It experienced record quarterly mortgage applications and increases in lending to consumers and businesses.

Net interest income advanced 3.4% to $11.0 million. Also, non-interest income posted a growth of 5.6% to $10.3 million. However, net interest margin inched down 10 basis points to 3.91%. Yet, the company's non-interest expenses skidded 0.6% to $12.4 million over the same period.

Credit quality improved in the quarter. Net charge-offs were $2.2 billion, or 1.15% (annualized) of average loans in the reported quarter, down from the prior-year quarter’s net charge-offs of $2.8 billion (1.52%). Moreover, provision for credit losses waned 2.1% to $1.8 billion in the reported quarter.

Earnings Estimates Inch Higher

For 2012, the Zacks Consensus Estimate has improved by a penny to $3.32 over the last 30 days. This reflects a year-over-year improvement of about 17.7%.

The Zacks Consensus Estimate for next year moved ahead by a penny over the last 60 days to $3.64.

Continuous Dividend Payment

Wells Fargo has continuously paid dividends despite the lackluster economic environment. Moreover, it has announced consecutive dividend increases over the past three years. The latest hike of 83.3% was announced in March 2012. Currently, the company pays a quarterly dividend of 22 cents per share, affirming a dividend yield of 2.6%.

Reasonable Valuation

Wells Fargo shares currently trade at 10.2x 12-month forward earnings, a 6.4% discount to the peer group average of 10.9x. Its price to book ratio of 1.3 is at a premium of 62.5% to the industry median of 0.8. The company has a trailing 12-month ROE of 12.8%, which is above its peer group average of 9.2%.

Chart Shows Strength

The stock has been consistently trading above its 200 days moving average over the last six months. Moreover, the stock is also trading ahead of the S&P 500 over the same period.

Wells Fargo looks like a growth and income stock owing to its decent earnings growth projections, its dividend yield and reasonable valuation. The company’s diverse geographic and business mix along with cross-selling opportunities enables it to sustain consistent earnings growth. Opportunistic acquisitions and strategic efforts to capitalize on the deleveraging activities of European banks also bode well.

Headquartered in San Francisco, California, Wells Fargo provides various banking products and services. The company was founded in 1852 and conducts business through more than 9,000 stores, 12,000 ATMs, the Internet and other distribution channels. It has offices in over 35 countries. With a market capital of about $180 billion, Wells Fargo competes with Fifth Third Bancorp (FITB) and M&T Bank Corp. (MTB), among others.

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