While all the country’s major banking names have dished out plenty of drama over the past few years, none have done so with as much flare as Bank of America Corp (NYSE:BAC). The volatility in the company’s results as well as from BAC stock appears to be in the past, though. The bottom line is finally reliable, even if shares continue to search for a consistent groove.
To that end, Tuesday morning’s first quarter earnings report could end up sealing the deal on traders’ suspicion that the bank’s turnaround effort have taken hold for good.
Bank of America Q1 Earnings Preview
As of the most recent look, analysts collectively expect BofA to report income of 35 cents per share on revenue of $21.61 billion for quarter ending in March. The bank earned 28 cents per share on a top line of $19.73 billion for the same quarter a year earlier.
Those solid growth expectations should kick off a third fiscal year of decided success.
Perhaps more so than most other big banks, Bank of America has struggled to shake off the lingering effects of the 2008 sub-prime meltdown and the subsequent era of low interest rates (which crimp banks’ margins). Just when some relief started to develop on that front, the implosion of crude oil prices in 2014 led BofA to book sizeable write-downs on loans to oil companies that could no longer afford to make loan payments.
Most of those ill effects are in the rear-view mirror now, however. Revenue has stabilized, and earnings have been healthy — and on the rise — since 2015.
Although revenue was a bit shy of expectations, JPMorgan Chase earned $1.65 per share versus estimates of $1.51 per share of JPM. Citigroup posted income of $1.35 per share, versus expectations for a profit of $1.24 per share. Both banks saw strength from their consumer-oriented arms, and both companies saw nice growth in trading revenue.
It would be surprising if Bank of America didn’t follow suit.
3 Things to Watch on Tuesday
While the mega-banks are more alike than different, there are some nuances that separate BAC from other investments in the arena. Current and prospective BofA shareholders may want to pay particular attention to three key drivers of its top and bottom line. In no certain order…
Cost cutting: One of CEO Brian Moynihan’s biggest missions for this year and next is culling $5 billion worth of annual expenses. It won’t all be done at once, but considering he’s been whittling the budget down for some time now, he may have been able to take a big bite out of spending last quarter.
Consumer business: As was noted, JPMorgan Chase and Citigroup both already posted strong first quarter numbers, largely on the heels of impressive improvements in their consumer business. Bank of America should do the same.
Thing is, an oversized proportion of BofA’s revenue mix comes from consumer lines. In fact, Bank of America’s consumer loan portfolio is second only to Wells Fargo & Co (NYSE:WFC). Bank of America also have more than its fair share of low-interest and no-interest deposits. The company may get more mileage out of a consumer-banking resurgence than Citi or JPMorgan did.
Trading: Trading and wealth management has never been a huge piece of the revenue pie for Bank of America, only accounting for about 15% of last year’s net income. The segment does represent a significant growth opportunity, though, particularly if the economy heats up and corporate earnings make equities a must-have for more and more people.
JPMorgan’s equities-based revenue was up 13% last quarter, and Citigroup’s was up 18%. Both banks saw even more revenue growth with bond trading.
Bottom Line for BAC Stock
Bank of America’s shares may have fallen 11% in just one month, and could fall farther still following the 85% rally between March 2016 and March of this year. Even the mere hint of weakness when the banks posts its Q1 results on Tuesday morning could accelerate the selling presently underway.
Don’t let such a response fool you, though. While arguably overvalued and still technically overbought, any pullback in BAC stock has more to do with right-sizing the stock’s price than reflecting the company’s success. Moynihan has the banking behemoth on the right track.
It would take a lot to change that, regardless of Tuesday’s response from investors.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.