To add even more fuel to the fire, Wells Fargo & Co (NYSE:WFC)’s biggest problems are in its 1-4 family real estate loans. In fact, almost half of the company’s non-performing loans come from this category. When you consider that 4.49% of the company’s loans in this category are non-performing, the company’s heavy push into mortgage lending should worry investors.
Sticking with the credit issue, Wells Fargo also has the lowest coverage ratio of their non-performing loans as well. In the last quarter, JPMorgan Chase & Co. (NYSE:JPM) reported the highest coverage ratio at 179%, followed by BB&T Corporation (NYSE:BBT) at 130%, and Bank of America Corp (NYSE:BAC) at 98.24%. Wells Fargo, on the other hand, reported a coverage ratio of just 88.09%. With a high percentage of past due loans, and the lowest coverage ratio, it’s possible Wells Fargo & Co (NYSE:WFC)’s management may be underestimating their liabilities.
And the stock is overvalued too
If you look at Wells Fargo’s forward P/E ratio of 10.2 compared to BB&T at 10.5, JPMorgan at 8.48, or Bank of America at 12.64, the stock looks fine. Analysts expect Wells to grow earnings by 8.1%, which looks better than JPMorgan Chase & Co. (NYSE:JPM) at 7.03%, but worse than BB&T Corporation (NYSE:BBT) at 8.33%, and Bank of America Corp (NYSE:BAC) at 22%. The company’s yield of over 3% is right in line with BB&T and JPMorgan, and much better than Bank of America. So where is the problem?
The problem is, the company’s book value relative to the share price. By this measure, Wells Fargo is more highly valued than any of their peers. Bank of America sells for just 60.3% of book value, JPMorgan Chase & Co. (NYSE:JPM) sells for about 91%, and BB&T Corporation (NYSE:BBT) sells for 114%. By comparison, Wells Fargo & Co (NYSE:WFC) currently sells for over 133% of book value.
Given that the company has issues in their loan portfolio, and their deposits are coming from more expensive sources than their peers, the current valuation doesn’t seem to make sense. At current prices, investors are saying Wells Fargo is 16% better than BB&T Corporation (NYSE:BBT), 46% better than JPMorgan Chase & Co. (NYSE:JPM), and 120% better than Bank of America Corp (NYSE:BAC). Given this extreme valuation difference, I don’t see how anyone can say Wells Fargo & Co (NYSE:WFC) isn’t overvalued.
Wells Fargo’s dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure out whether Wells Fargo is a buy today, I invite you to download our premium research report from one of The Motley Fool’s top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo & Co (NYSE:WFC).
The article There Is No Question This Stock Is Overvalued originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
