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Buy Wells Fargo Ahead of Earnings

Tickers in this article: C JPM WFC
NEW YORK (TheStreet) -- While most banks tend to fall within the same category and are thus appraised on similar standards and metrics, it has become clear that Wells Fargo(WFC) has always strived to be a cut above the rest.

Although the third-quarter report was not up to the bank's usual standards, relative to expectations, it was actually still pretty good. It posted $4.9 billion in net income, continuing a performance that has now reached 11 consecutive quarters of profit growth.

Not only was this a company record, but it also represented year-over-year increase of 22% -- outpacing both JP Morgan(JPM) and Citigroup(C) . Now that Wells' fourth-quarter report is due out Friday, expectations are even higher.

Analysts are expecting Well Fargo to post earnings of 89 cents per share on revenue of $21.29 billion. Essentially, the Street is looking for another 22% growth in profits, unheard of for a enterprise this size. However, although revenue estimates suggest a modest 3% growth year-over-year, it also represents a 3% sequential decline.

This may raise some eyebrows, but then again, the entire sector has been impacted by the recent financial climate, including poor long-term interest rates. Despite these concerns, Wells Fargo was still able to retain almost $10 billion in first mortgages in its Q3. This should be an area of interest during the Q4 conference call.

Currently, Wells Fargo has a considerable market share position of 33% in loan originations. If the bank can build on its Q3 performance, during which it posted $10 billion in mortgage originations, investors buying ahead of the report will have been well served.

In 2012, the bank was an outperformer in this category and it is certain to continue as the housing recovery advances. Overall, investors should expect an excellent report. And it really comes down to the fact that Wells Fargo has an excellent brand.

From an investment perspective, there will always be a premium placed on banks with above-average growth prospects that still meets certain criteria of safety. Wells Fargo continues to benefit from a business that is unburdened from unfavorable risk while consistently demonstrating solid execution and leverage.

The stock is trading at a considerable discount to long-term growth potential. Investors should expect gains of 20% as the stock should reach $40 by its third quarter report.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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