Wells Fargo worth at least $50!

Wells Fargo managed to post a small profit of US$0.08 per common share, against expectations of a loss: 4Q 09 earnings were impacted by the repayment of TARP (US$0.47 impact). WFC's results look decent; the bank posted record profit and revenue for 2009, helped by the Wachovia acquisition in 4Q 08.

Buffett was earlier quoted estimating WFC's pre-tax pre-provision profit (PTPP) at US$40 billion a year and the bank has not disappointed, with 2009 PTPP at US$39.7 billion, doubling 2008's US$19.3 billion. WFC took a US$21.7 billion provision for credit losses in 2009, up from US$16 billion in 2008. A quick sensitivity analysis using varying estimates for annual credit losses yields EPS estimates of between US$2.71 and US$4.74, which means the stock still looks a bargain. Credit losses under more normalised conditions could be closer to US$10 billion a year, which would translate to fair value at about US$52, more than 80% upside from current levels.