Wells Fargo's earnings should look good given areas of the business with subdued expectations. The report could lift shares, which appear cheap.

The stock is down about 8% this year versus the 14% gain for the State Street SPDR S&P Bank exchange-traded fund, home to a host of large and midsize banks across the country.

Wells Fargo trades at slightly more than 11 times forward earnings. That's well below the teens multiples for the surging investment banks, which are benefiting from recent initial public offerings and trading activity, and compares favorably to the roughly 12 times for Bank of America and Citigroup. Wells Fargo's multiple is also lower than that of regional banks focused more on commercial banking and lending, such as PNC Financial Services, Citizens Financial Group, and M&T Bank. All three sell for over 12 times forward earnings.

The concerns for Wells Fargo starts with its failure to reach elite returns on equity -- analysts see 15.3% this year versus a range of 17% to over 22% for Morgan Stanley, JPMorgan Chase, and Goldman Sachs Group. Wells has seen falling net interest margins (the percent of the interest it earned on longer-term assets after subtracting the cost of interest-bearing accounts). It also slightly missed analyst expectations for net interest income in the first quarter.

The bank has an opportunity to flip the script when it reports its second-quarter earnings before the market opens on July 14.

For the quarter, analysts project total revenue to grow 4.9% year over year to $21.8 billion, according to FactSet. This would mostly come from growing loan volumes and deposits. It helps that U.S. consumer and business spending continues to grow. Given that net interest margins are expected to drop 24 basis points year over year, net interest income growth would result from higher volumes.

This should lift GAAP earnings per share almost 7% to $1.71. Wall Street sees management exercising enough cost discipline to keep operating expense growth low, and the operating profit margin rising, boosting the bottom line.

Bottom line figures could easily come in better-than-expected. Management has missed them only once since 2022, with an average EPS result that's more than 9% above estimates since the first quarter of 2023, according to FactSet.

History could repeat itself later this month.

Perhaps the main reason for hope is that Wells Fargo said at an investor conference in early June that its loan growth was trending a touch higher than initial guidance. Analysts have since only raised net interest income estimates for the quarter by 0.1%, to $12.4 billion. If the lending business is indeed trending the way management says, earnings could certainly beat estimates.

Elsewhere, the fact that the Federal Reserve last year lifted its "asset cap" on the company has the market hoping to see a more aggressive increase of its asset base. That could increase revenue across the business.

"Momentum has been building significantly post the lifting of the asset cap and we expect this to be more evident over the next few quarters," writes Deutsche Bank analyst Matt O'Connor, who sees strong likelihood that revenue from the markets division -- securities sales and trading, in the corporate and investment banking segment of earnings -- will beat expectations.

Also, the net interest margin might finally bottom this quarter. Analysts see it hitting 2.44% before rising steadily to 2.46% by the fourth quarter.

All in, the earnings picture for the quarter and the rest of the year looks fine. As long as the picture remains as is -- or better yet, improves -- rising profit should bring the stock higher as it's not reflecting such a stable picture at current prices.

"Shares should benefit as net interest margin stabilizes and revenue momentum improves," O'Connor writes.

(END) Dow Jones Newswires