Thursday, April 21, 2011

Wells Fargo & Company (NYSE: WFC) Q2 2011 Price Target

Recent price: 28.83$
P/E Ratio: 13.05
3 Months Target Price: 32.50$

Company Description
Wells Fargo & Company is a diversified financial services company. The Company provides banking, insurance, investments, mortgage banking, investment banking, retail banking, brokerage, and consumer finance through banking stores, the Internet and other distribution channels to consumers, businesses and institutions in 50 states, the District of Columbia, and in other countries. The Company operates in three segments: Community Banking, Wholesale Banking, and Wealth, Brokerage and Retirement. The Company provides other financial services through subsidiaries engaged in various businesses, principally: wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency and brokerage services, computer and data processing services, trust services, investment advisory services, mortgage-backed securities servicing and venture capital investment.

Confidence Margins
Strong resistance $34.25 (+19%)
Light resistance $32.63 (+13%)
Light support $28.21 (-2%)
Strong support $26.51 (-8%)

Shares of Wells Fargo dropped in huge volume after reporting earnings of 67 cents a share, barely beating estimates. Revenue dropped 5% to $20.33 billion, below analyst's views of $21.24 billion. Return on assets increased; net loan charge offs declined, year over year, for the quarter. Nonperforming assets and loans also both fell, indicating the lender is gradually navigating out of the financial crisis. As long as Berkshire Hathaway is not selling shares, this a good entry point in the company.

Entry strategy
For the cautious investor:
Buy the stock for 29.50$ or less.

For the risk-taking trader:
The July 2011 30$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 81$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 32.50$, or keep it until 34$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 32.50$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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