Wells fargo is among the largest mortgage originators

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Wells Fargo is among the largest mortgage originators and servicers in the United States. It has direct exposure to about $320 billion of consumer mortgage loans, of which about $42 billion are second liens. With regard to the Volcker Rule, Wells has relatively less exposure on the capital markets side than other large-cap banks since it is not a big proprietary trader or investor in private equity and real estate. However, the company is a major owner and trader of derivatives used to hedge interest risk, so there could be some negative impact there. The biggest negative impacts on the company have been in consumer banking due to lower fees on debit cards and overdraft accounts, and higher FDIC fees. COMPANY DESCRIPTION Wells Fargo is one of the largest diversified financial services firms in the United States, with a nationwide network of several thousand branches and more than 15,000 financial advisors. Wells Fargo provides a full range of consumer banking, commercial banking, and investment banking services. The company nearly doubled its assets with the acquisition of the former Wachovia. Wells Fargo originates roughly one of every four residential mortgages in the United States. VALUATION The shares have traded in a range of $49-$64 over the past year, and are currently near the middle of that range. The stock trades at 1.6-times tangible book value and at 12.1-times our revised 2018 EPS estimate, closer to its historical average multiples. We view these valuations as fair given the company’s current challenges, which include sluggish revenue growth as it recovers from a 2016 sales scandal. Our rating remains HOLD. On February 5 at midday, HOLD-rated WFC traded at $59.12, down $4.95. (Stephen Biggar, 2/5/18) INTERNATIONAL PAPER CO. (NYSE: IP, $62.23) ................................................................. BUY IP: Boosting target by $8 to $70 * Despite rising input costs, International Paper has been able to pass along price increases, increase production, reduce planned maintenance outages, and improve manufacturing efficiency. * On February 1, the company reported 4Q17 non-GAAP net income of $530 million or $1.27 per diluted share, up from $279 million or $0.67 per share in 4Q16. EPS topped the consensus of $1.19 and our estimate of $1.18. * We are increasing our 2018 EPS estimate from $4.35 to $4.70, which assumes further acquisition-related synergies along with higher production and pricing. We are also setting a 2019 estimate of $5.15. * On valuation, IP is trading at 13.2-times our 2018 EPS forecast, below the midpoint of the five-year annual range of 7.8-21.2 and the average multiple of 17.7 for close competitors. ANALYSIS INVESTMENT THESIS We are maintaining our BUY rating on International Paper Co. (NYSE: IP) and raising our target price to $70 from $62. We believe that IP’s purchase of assets from Weyerhaeuser will continue to strengthen its product line and expand its customer base. The company has also acquired a newsprint mill in Spain from Holmen Paper, which it will convert to produce recycled container board, and has sold a range of underperforming assets. In addition, it is buying back stock and has a steady record of increasing its dividend, with a 3% increase in November 2017. The company has also implemented effective cost-cutting measures
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