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Is Wells Fargo & Co (WFC) Still the Best Bank in the Business?

Wells Fargo & Co (NYSE:WFC) will release its quarterly earnings report on Friday, and some investors are already concerned about the potential for a disappointment. With mortgage rates having risen sharply in recent weeks, the banking giant is facing a likely decline in refinancing activity, and a drop in new purchase mortgages could be right around the corner, choking off a vital source of earnings for Wells Fargo.

Wells Fargo & Co (NYSE:WFC)

Still, Wells Fargo & Co (NYSE:WFC) has put together a good track record of holding its own even in tough economic conditions. Shareholders seem optimistic as the stock has performed quite well lately. Let’s take an early look at what’s been happening with Wells Fargo over the past quarter and what we’re likely to see in its quarterly report.

Stats on Wells Fargo

Analyst EPS Estimate $0.92
Change From Year-Ago EPS 12%
Revenue Estimate $21.20 billion
Change From Year-Ago Revenue (0.4%)
Earnings Beats in Past 4 Quarters 4

Source: Yahoo! Finance.

Can Wells Fargo keep its earnings-beat streak alive?
Analysts have raised their views on Wells Fargo & Co (NYSE:WFC)’s earnings in recent months, kicking up their June-quarter estimates by a penny per share and raising their full-year 2013 consensus by more than a nickel per share. The stock has also performed admirably, with gains of about 15% since early April.

One big reason Wells Fargo & Co (NYSE:WFC)’s stock has done so well is that the bank has managed to keep its fundamentals strong. In April, the company reported record quarterly net income with total loan growth coming in at 4.2% because of increased activity in the commercial lending space. Deposits were also higher, and the bank has done a good job of keeping its capital ratios high in the face of Fed stress tests and regulatory scrutiny.

Still, flagging mortgage activity could prove to be problematic for Wells Fargo & Co (NYSE:WFC). Last quarter, mortgage originations fell by 16%, and the big rise in rates could push those levels downward even further. Yet Wells has a big advantage over Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co.(NYSE:JPM) in that it has seen delinquency rates and foreclosure ratios that are much lower than those of its competitors. B of A’s delinquency rate was about double that of Wells Fargo, and Wells came in more than 30% lower than JPMorgan’s delinquency rate. Loan quality should be able to help Wells weather the mortgage storm better than its rivals.

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