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How the Stock Market Reacted to Wells Fargo’s 3Q15 Earnings

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Wells Fargo’s stock performance

On October 14, 2015, Wells Fargo (WFC) reported its 3Q15 EPS (earnings per share) at $1.05, which beat consensus estimates of $1.04. Shares closed at $52.69 on October 15, gaining 1.6% in the last two trading sessions.

On the day of the earnings release, stock market reactions were subdued as the stock lost 0.8% value. However, the following day, the stock rallied ~3.0%. Year-to-date, shares of Wells Fargo have lost 2.0% of its value, outperforming its peers in the financial sector (VFH).

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Analysts expect further upside

With an average consensus price target of $59.13 and a median target estimate of $59.50, Wells Fargo stock is still at a discount of 11.4% to analyst expectations. This suggests that Wall Street is upbeat about the stock despite it being hurt by low interest rates and global weakness.

This trend is also evident if we look at the ratings on the stock. Among the 39 analysts following the stock, 24 have assigned “buy” ratings, three have assigned “sell” ratings, and 12 have assigned “hold” ratings. With third-quarter earnings surpassing expectations, we may see some upgrades.

It’s important to note that the estimated EPS has been revised downward at 16 instances by research brokerages in the past four weeks and upward at two instances.

Valuations

Wells Fargo shares trade at a PB (price-to-book) multiple of 1.58x, while the average PB multiple for banks in XLF is 1.16x. Wells Fargo’s stock is the most expensive on a PB basis among large-cap banks within XLF. The only banks with higher PB ratios are Northern Trust (NTRS) and US Bancorp with PB multiples of 1.93x and 1.78x, respectively.

Large-cap peers Citigroup (C), J.P. Morgan, and the giant Goldman Sachs (GS) are trading at PB multiples of 0.77x, 1.04x, and 1.05x, respectively.

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