Wells Fargo & Co (WFC), Bank of America Corp (BAC): Bank Stocks Are Still Cheap After This Year’s Gains

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Wells Fargo & Co (NYSE:WFC), the fourth largest bank in the U.S., has grown tremendously over the past few decades. In fact, over the past ten years alone, Wells Fargo’s total assets have nearly quadrupled, from about $388 billion to over $1.4 trillion. Additionally, Wells Fargo was one of the few major U.S. banks that actually came out of the financial crisis better than it went in, thanks to some very savvy moves that should produce better than average returns going forward. However, with shares up by more than 30% in the past year, is Wells Fargo still a buy?

A recent history of Wells Fargo

Wells Fargo & Co (NYSE:WFC) has been around since 1852, but did not begin its rapid growth until the 1980’s. Wells Fargo first entered the top ten U.S. banks in 1986 with the acquisition of Crocker National Bank. The company became number 9 with its acquisition of First Interstate Bancorp a decade later, and then became the 7th largest when it was acquired by Norwest Corporation which kept the Wells Fargo name.

Wells Fargo & Co (NYSE:WFC)

In one of the best deals to come out of the crisis, Wells Fargo & Co (NYSE:WFC) acquired Wachovia in 2008, which had been weakened by nonperforming mortgage loans. The purchase price of $23.1 billion was a fraction of Wachovia’s value just a few years earlier, and the deal added $707 billion to Wells Fargo’s balance sheet. Most importantly, it allowed Wells Fargo to significantly expand its geographic footprint and customer base, and it catapulted the company to the 4th largest U.S. bank, where it has remained ever since.

Numbers and projections

With some of the strongest fundamentals in the banking industry, the market has a generally high opinion of Wells Fargo. While mortgage banking revenues have slowed down a bit, the rise in interest rates that has occurred lately should help the bank’s net interest margin, and this trend will likely continue if rates rise going forward.

Wells Fargo & Co (NYSE:WFC) is expected to earn $3.71 for the 2013 fiscal year, which means that shares trade at just 10.9 times current year earnings. The consensus calls for the company’s earnings to rise to $3.90 and $4.13 over the following two years, for a three-year annual average forward earnings growth rate of 7%. Bear in mind that this could prove to be very conservative if interest rates begin to rise faster than currently expected. Also worth noting is that Wells Fargo & Co (NYSE:WFC) has successfully raised its dividend faster than virtually any other big bank after the crisis, and currently pays 2.9% annually, just shy of its payout before the crisis hit.

Bank of America: for those with a stronger stomach

Bank of America Corp (NYSE:BAC) was hit harder by the crisis, but that means that there is the potential for a stronger comeback for those investors willing to ride out the roller coaster ride in the meantime. With about $2.2 trillion in assets, Bank of America is the 2nd largest U.S. bank, but they have not quite recovered their pre-crisis stability just yet. Bank of America Corp (NYSE:BAC) just returned to profitability last year, after posting operating losses from 2008 through early 2011, and ended 2012 with a modest profit of $0.25 per share. In contrast, Wells Fargo & Co (NYSE:WFC) never had a losing year, and last year’s earnings of $3.37 per share are actually higher than the company’s best year before the crisis.

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