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Why Wells Fargo (WFC) Might be Well Poised for a Surge

Wells Fargo (WFC) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.

The upward trend in estimate revisions for this biggest U.S. mortgage lender reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Wells Fargo, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The earnings estimate of $0.56 per share for the current quarter represents a change of +5500% from the number reported a year ago.

Over the last 30 days, the Zacks Consensus Estimate for Wells Fargo has increased 10.67% because four estimates have moved higher while one has gone lower.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $2.42 per share, representing a year-over-year change of +490.24%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Wells Fargo. Over the past month, 10 estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 18.64%.

Favorable Zacks Rank

The promising estimate revisions have helped Wells Fargo earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Wells Fargo shares have added 7% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.


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