Foolish Forecast: Bank on Wells Fargo

Banking behemoth Wells Fargo (NYSE: WFC  ) will report Q1 2007 financial results next Tuesday. Here's what to expect.

Word on the street:

• Analysts expect earnings to grow to $0.65 per share, up 8.3% from last year's first quarter.
• The Motley Fool CAPS community has awarded Wells Fargo a three-star rating.

By the numbers:
The net interest margin -- a key banking metric -- has trended down over the past three years, as the spread between the rates Wells Fargo pays for deposits and earns on loans has shrunken. The spread had recently gone negative, in what's dreadfully known as the inverted yield curve. Analysts expect the net interest margin to remain close to where it ended the year: right around 4.83%.

TTM Ratios	Dec. '03	Dec. '04	Dec. '05	Dec. '06
Net Interest Margin	5.08%	4.89%	4.86%	4.83%
Efficiency Ratio	60.60%	58.50%	57.70%	58.10%
Return on Equity	19.15%	19.39%	19.54%	19.60%

Trailing-12-month ratios provided by Capital IQ, a division of Standard & Poor's.

One Fool says:
Wells Fargo's return on equity ended 2006 at 19.6%, besting money-center peers such as Wachovia (NYSE: WB  ) at 13.2%, Bank of America (NYSE: BAC  ) at 17.8%, Citigroup (NYSE: C  ) at 18.3%, and JPMorgan Chase (NYSE: JPM  ) at 12.2%. It is also one of the most consistent operators -- return on equity has hovered close to 20% for the past five years.

Wall Street is still trying to determine whether subprime and related mortgage woes will hurt the larger financial institutions. Wells Fargo could see some volatility in its mortgage operations, but few expect its 20-year streak of double-digit sales and earnings growth to come to a screeching halt. That's because Wells Fargo is well-diversified in consumer and commercial banking and has forgone mediocrity to become one of the most dependable, profitable banks out there.  

Further fiscal Foolishness:

• The Best Financial Stock for 2007: Wells Fargo
• Higher Returns, Lower Risk
• Cash In on the Subprime Crisis

Wait! There's more. Be sure to read pre-earnings news and analysis for other Big Banks.

Bank of America and JPMorgan Chase are Motley Fool Income Investor recommendations. Discover The Motley Fool's top dividend-paying stock selections with a free 30-day trial.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy.