WFC Fundamental Research Investment Analysis, Wells Fargo & Company

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Wells Fargo & Company (WFC)

The Razor's Edge

2-Year Price History

Recent Price
(2/9/2009)
$19.06
52-Week Price
$13.74 - $44.75
Market Capitalization
$63.4 Billion
Dividend Yield
7.10%
Most Recent Dividend
$1.30

About Wells Fargo & Company

Wells Fargo & Company is considered to operate in the Financial sector. They specifically operate in the Money Center Banks business segment contained within the Banking industry.

A diversified financial services company which provides retail, commercial and corporate banking services through banking stores located in 23 states.

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WFC Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, WFC the high and low end of the Price to Sales per share ratios are 1.88x and 1.33x respectively.

Notice that WFC's current Price to Sales per share ratio is 1.35x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $19.06, WFC is 16% below where we would expect to see it. This will beneficially factor into our final analysis of WFC as it is not often that this stock sinks to these levels.

WFC Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently WFC is significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for WFC to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 9.93 and a 7.17 low over the same period.

Now that WFC’s current price is $19.06 and its Price to Cash Earnings ratio is 5.20, we are very positive on its outlook from the cash earnings perspective. In fact, WFC is now trading a full 40% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why WFC has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

WFC Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from WFC against the historic high and low levels over an available data range. Because WFC has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In WFC’s case, the estimated annual dividend is $1.36 producing a current dividend yield of 7.11%. The highest dividend yield from WFC in recent history was 9.90% while the lowest dividend yield was 1.60%. If you are looking for some “bang for your buck” then a dividend yield of 23.65% above the historical median should be enticing. WFC receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.

Peer Comparison

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Wells Fargo & Company Industry Grouping

(2/9/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding WFC) 4.15 4.27 » 34.42 1.00 0.73 » 3.27 19.23% 15.44%
*10 year range does not include current year values
Wells Fargo & Company WFC $63.4 Billion $19.06 5.20 5.92 » 27.15 1.35 1.50 » 3.51 13.48% 18.30%
Mitsubishi UFJ Financial Group, Inc. MTU $56.5 Billion $5.32 6.90 2.46 » 72.83 1.60 0.74 » 4.96 24.45% 8.37%
Banco Santander ADS STD $48.8 Billion $7.81 2.74 2.38 » 31.46 0.88 0.69 » 2.89 22.62% 12.36%
Banco Bilbao Vizcaya Argentaria SA BBV $36.4 Billion $9.70 3.50 3.33 » 25.20 1.09 0.89 » 3.05 17.65% 21.16%
Royal Bank of Canada RY $35.1 Billion $26.18 5.69 8.42 » 21.30 1.11 0.77 » 2.53 10.66% 19.40%
Bank of America Corp. BAC $34.6 Billion $6.89 1.91 4.74 » 21.33 0.32 0.58 » 2.94 20.79% 15.92%
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Key Fundamentals

WFC - Wells Fargo & Company Fundamentals
Price (2/9/2009) $19.06
Volume (2/9/2009) 73.9 Million
10 Day Average Volume 114.3 Million
13 Week Price Range $13.74 - $32.76
52 Week Price Range $13.74 - $44.75
LTM Revenue $52.0 Billion
 
Shares Outstanding (12/2008) 3.3 Billion
Market Capitalization $63.4 Billion
Shares Held By Institutions 2.5 Billion
Institutional Holders 1,541
% Shares Held By Institutions 66.20%
Earnings Per Share (EPS) $0.75
P/E Ratio 25.40
Book Value Per Share $13.93
 
Gross Margin n/a%
Quarterly Dividend 1.36
Dividend Yield 7.10%
Beta 0.62
Fiscal Year Ends December