CHICAGO, April 21, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Wells Fargo & Company (NYSE: WFC), JPMorgan Chase & Co. (NYSE: JPM), U.S. Bancorp (NYSE: USB), Citigroup Inc. (NYSE: C) and Wynn Resorts Ltd. (Nasdaq: WYNN).
Here are highlights from Wednesday's Analyst Blog:
Wells Fargo Reports In Line
Wells Fargo & Company's (NYSE: WFC) first quarter 2011 earnings came just in line with the Zacks Consensus Estimate. The company reported earnings of 67 cents per share. Results, however, significantly surpassed earnings of 45 cents in the year-ago quarter and 61 cents in the prior quarter.
Quarterly results reflect a decent reserve release and a decrease in expenses. However, the positives were offset by lower-than-expected revenue driven by a fall in both interest and non-interest income.
Wells Fargo's first quarter net income applicable to common stock came in at $3.57 billion compared with $3.23 billion in the prior quarter and $2.37 billion in the prior-year quarter.
Wells Fargo reported revenue of $20.3 billion, down 5% from the prior quarter and also below the Zacks Consensus Estimate of $21.3 billion. The decline primarily reflected lower mortgage banking revenue and net interest income.
On a sequential basis, Wells Fargo's commercial mortgage servicing, fixed income and equity sales and trading, global remittance, real estate capital markets, retail brokerage, retirement services, SBA lending and wealth management reported revenue growth.
Segment wise, Community Banking and Wealth, Brokerage and Retirement segment reported a 13% and 72% growth in revenues respectively, while Wholesale Banking segment's revenue was down 2% sequentially.
Wells Fargo reported reserve release of $1.0 billion (pre-tax) attributable to improved portfolio performance. The company also expects future reductions in the allowance absent significant deterioration in the economy.
Behind the Headline Numbers
Net interest income for the quarter came in at $10.7 billion, down 4% from in the prior quarter reflecting a decline in net interest margin. Net interest margin decreased 11 basis points to 4.05% from 4.16% in the prior quarter.
The decrease in interest margin was primarily due to a lower level of accelerated income from purchased credit-impaired (PCI) loan resolutions and securities redemptions predominantly related to legacy Wachovia positions. Additionally, higher levels of low-yielding cash and short-term investments also led to the decline in margin.
Wells Fargo's non-interest income came in at $9.7 billion, down 7% from the prior quarter. The decrease primarily stemmed from a fall in mortgage banking income. In addition, trust and investment fees and insurance fees were down. The decrease was partially offset by higher card fees and gains on trading assets.
As of December 31, 2010, total loans were $751.2 billion, down from $757.3 billion as of December 31, 2010, including non-strategic/liquidating portfolios. These portfolios declined $6.5 billion in the quarter. Excluding that planned reduction, total loans increased modestly from the prior quarter. Average core deposits were $796.8 billion, up 5% from a year ago and 1% (annualized) from fourth quarter 2010.
However, non-interest expense at Wells Fargo was $12.7 billion, down 5% from the prior quarter. The decrease reflects lower merger integration costs and salaries, partially offset by operating losses from additional litigation accruals for foreclosure-related matters, and seasonally higher incentive compensation expenses.
Credit quality continued to improve during the reported quarter. Net charge-offs were $3.2 billion or annualized 1.73% of average loans, down from prior quarter net charge-offs of $3.8 billion or annualized 2.02%. This reflected improved net charge-offs across all major portfolio segments.
Nonperforming assets (NPAs) continued to decline with Wells Fargo reporting NPAs of $30.6 billion, down 5% sequentially. Nonaccrual loans declined to $25.0 billion from $26.2 billion in the prior quarter.
Wells Fargo's allowance for credit losses, including the allowance for unfunded commitments, totalled $22.4 billion at March 31, 2011, down from $23.5 billion at December 31, 2010. Provision for credit losses decreased to $2.2 billion from $3.0 billion in the prior quarter.
As of March 31, 2011, over 665,000 active trial or completed loan modifications at Wells Fargo had been initiated since the beginning of 2009; of this total, over 85% were through Wells Fargo's own modification programs and the remainder were through the federal government's Home Affordable Modification Program (HAMP).
Wells Fargo reported an increase in capital ratios in the first quarter. The company implemented several capital actions including dividend increase, share repurchase program reinstatement and calling $3.2 billion of high-cost trust preferred securities that will no longer count as Tier 1 capital under Dodd-Frank and Basel III.
The Tier 1 leverage ratio was 9.3% as of March 31, 2011, up from 9.2% as of December 31, 2010. The company's estimated Tier 1 common ratio was 7.2% as of March 31, 2011 under the Basel III capital proposals. Book value per share improved to $23.18, from $22.49 in the prior quarter and $20.76 in the prior-year quarter.
Wachovia Integration Update
Wells Fargo'sWachovia merger integration remained on track with the company converting retail banking stores in Connecticut, Delaware, New Jersey and New York in first quarter of 2011. The company also completed conversion of one common retail brokerage platform.
In addition, Pennsylvania banking stores were converted on April 15. While Florida banking stores are expected to get converted in June and July, remaining Eastern banking markets expected to convert by year end.
Dividend Raise and Buyback
Last month, Wells Fargo's announced a special first quarter 2011 cash dividend of 7 cents per share on its common stock. Combined with a quarterly dividend of 5 cents per share declared in January 2011, the special dividend brought the total dividend to 12 cents. The increased dividend was paid on March 31 to shareholders of record on March 28.
The Board also augmented Wells Fargo's share repurchase by an additional 200 million. The quarterly dividend rate increase to 12 cents per share was part of the capital plan the company submitted to the Federal Reserve Board in January 2011.
Similar to Wells Fargo, results at JPMorgan Chase & Co. (NYSE: JPM), U.S. Bancorp (NYSE: USB) and Citigroup Inc. (NYSE: C) benefited from credit quality improvement. These banks have reduced their loan provisions and results could match or exceed the market expectations.
We believe lower credit costs will be the trend in first quarter results. However, revenue growth still remains elusive at many of these banks and we do not expect a significant turnaround in the near term.
We believe that with its diverse geographic and business mix, Wells Fargo is well positioned compared with its peers. The Wachovia acquisition and the demise of some smaller players helped it garner a larger share in the mortgage markets.
Yet the recent financial regulations are expected to have a negative impact on both top and bottom-line results of the company. Costs associated with loan resolutions and loss mitigations are also expected to remain elevated in the near term.
Wells Fargo shares retain a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock.
Wynn Beats, Doubles Dividend
Wynn Resorts Ltd. (Nasdaq: WYNN) reported its first-quarter 2011 adjusted earnings of $1.38 per share, comprehensively beating the Zacks Consensus Estimate of 73 cents and the year-earlier earnings of 27 cents. On a GAAP basis, net income was $173.8 million or $1.39 per share versus $27.0 million or 22 cents per share recorded in the comparable quarter last year.
The results were boosted by higher-than-expected revenues. Net revenue climbed 38.7% year over year to $1,260.3 million outpacing the Zacks Consensus Estimate of $1,133.0 million. The outperformance was primarily attributable to its booming Macau operations and improved performance at Las Vegas.
Net revenue at Wynn Macau was $865.7 million, up 46.6% year over year, primarily driven by a significant increase in table games turnover in the VIP segment, which rose 44.7% from the prior-year period to $29.3 billion.
The VIP table games win in the quarter was 2.69% based on turnover, but was slightly below the expected range of 2.7% to 3.0% and significantly higher than 2.70% recorded in the prior-year quarter.
However, table games in the mass market category expanded 29.2% year over year to $682.5 million. Mass market table games win rate was 27.9%, well above the expected range of 21% to 23% and 22.2% recorded in the year-earlier quarter.
Average daily rate (ADR) at Wynn Macau was $307, up from $282 in the year-ago quarter. However, occupancy level plummeted to 88.6% from 90.7% in the prior-year quarter.
Non-gaming revenues at Wynn Macau shot up 50.2% to $94.2 million from the prior-year quarter, primarily aided by higher hotel and retail revenues. These revenues leaped 79.1% and 37.7%, respectively, driven by the addition of Encore rooms and three new boutiques at Encore. Retail revenues benefited from strong same-store sales growth.
Including Encore, Wynn Resorts currently boasts 499 tables (263 VIP tables, 225 mass market tables and 11 poker tables) and 1,015 slot machines in Macau.
Las Vegas Operations
Wynn Resorts' revenue from Las Vegas operations increased 24.0% year over year to $394.6 million. Net casino revenue was $194.2 million, up 39.2% from the prior-year period. Gross non-casino revenues grew 10.8% year over year to $249.0 million, driven by increased revenues from all non-gaming segments.
With the global economy recovering gradually, Wynn reported an upside in room revenues, which jumped 13.4% year over year to $88.0 million. ADR also rose 18.2%, but occupancy fell 1.7%, due to 2.3% fewer rooms available for sale during the quarter, due to the remodeling of the rooms at Wynn Las Vegas. This room remodeling is expected to be completed in the second quarter of 2011.
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