The financial and banking sectors usually sound like risky investments after the last economic crisis. However, some of the main companies in the industry have been showing consistent signs of recovery and plenty of knowledge acquired from past mistakes. Therefore, we will look into the stock of JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), and Bank of America Corp (NYSE:BAC) in order to expand these concepts.
A solid stock to examine
Financial services company, Wells Fargo & Co (NYSE:WFC), is one of the largest in the U.S. with over $1.4 billion in assets. It has avoided most of the mistakes that led its competitors to very complicated financial situations, thus becoming attractive for new customers in a recovering economy.
It has recently made public the earnings for 2013’s first quarter, reporting $0.92 EPS, up 22.7% from last year’s same quarter, beating Zack’s consensus estimate by $0.05. This was the thirteenth quarter of consecutive earnings growth, evidencing good management skills and an important ability to cope with the effects of the economic crisis.
Nevertheless, the stock price is expected to perform neutrally, delivering an increase around 3% within one year, as the price is already close to the highest point in the past ten years. These conservative calculations are motivated by the little growth and commercial loan demand experienced by the company, although credit quality maintained its ongoing improvement, reducing nonperforming assets to a mere 1.6% of the total.
In addition to the aforementioned, some other warning signs cannot be ignored when considering investing in this firm. While Altman-Z Scores are somewhat greater than then ones offered by insurance companies like Metlife Inc (NYSE:MET) or Hartford Financial Services Group Inc (NYSE:HIG), they still are in the distress zone. With a 0.39 value, bankruptcy cannot be ruled out. Revenue per share has also been low lately, since it has undergone a three year decline. Although the $16.28 revenue per share offered in the last fiscal year was above the company’s average, it was way below the $19.51 retrieved in 2009.
Despite these signs, some encouraging indicators can be found in Wells Fargo & Co (NYSE:WFC). For starters, operating margin has been undergoing a five-year consistent expansion, reaching 33.1%. Even though the company’s high was at 36.1% before the crisis, current values are almost as high, superior to the operating margin of 80% of the 545 similar banks in the U.S., and almost ten points above the median. Dividend yield is also relatively elevated at 2.48%, close to a three year high and, once again, above the 2.3% segment median.
While Tom Russo decided to buy over 12 million shares in 2013’s first quarter, increasing his participation in an 8.81%, Zack’s #3-Hold rank agrees with many Barrons and Wall Street Journal analysts, who also recommend to hold, although consensus advises to overweight Wells Fargo’s stock.