Finance 8001: Investment Fund Management Analyst Report

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Finance 8001 Investment Fund ManagementAnalyst
Report
Valuation of Wells Fargo Corporation NYSC
(WFC) Sector Financial Industry Money Central
Bank
Presented by Ravindra Battula

• University of Missouri - Columbia
• February 13, 2007

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Profile

• Founded in 1929
• Headquartered in San Francisco, California
• Has over 6,200 branches located throughout US
• Services offered in 3 major segments
• Community Banking
• Wholesale Banking
• Wells Fargo Financial

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Diversity in earnings
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Success in Cross-Selling
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Strong Sales Growth
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Key Stats

• Currently trading at 35.60
• 52 Week High 36.99
• 52 Week Low 30.60
• ROA 1.76
• ROE 19.60
• Profit Margin 25.33
• Operating Margin 56.45
• Beta 0.32 provided by moneycentral.msn.com

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Key Stats
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Valuation

• Buffets Owners Earnings Model
• 2-Stage Dividend Discount Model

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Stock Performance
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Wells Fargo Vs SP 500
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Wells Fargo Vs Russell 2000
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WFC Vs Bank of America
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Technical Analysis
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Technical Analysis
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Industry Analysts Recommendations
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Industry Analysts Recommendations
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Future Outlook

• Double digit growth in revenue and earnings
• Consumer Cross-Sell with 8 products
• 1 Small business lender
• 1 Online Internet Bank (as per Watchfire)
• Focus on acquisition approach
• Financial criteria IRR 15 with conservative
  assumptions

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Pros Cons

• Pros
• High expected growth rate of banks in the
  portfolio
• An industry leader in domestic banking industry
• Relatively low risk (Beta 0.32)
• Cons
• Growth rate could be overstated
• Falling behind the competing bankers in the
  industry
• The real-estate bubble could impact on Wells
  Fargos mortgage business (more than 20 of
  revenue)
• Lack of exposure to global markets can act
  catastrophic with geographic risks

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Considerations
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Recommendations

• Keeping in view of Portfolio committees
  guidelines
• I recommend Sell the Wells Fargo holdings
• Consider investing in Bank of America
• The recommendation is based on the valuations
  that suggested that the share is close to its
  desired price

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• Questions?

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• Thank You!