Bank of America Is a Q2 Earnings Story to Avoid

Strictly looking at technical momentum, it’s difficult not to feel confident in Bank of America (NYSE:BAC) as it heads toward its second quarter of 2020 earnings report. After several wild sessions last month, BAC stock jumped higher on positive medical news regarding the novel coronavirus. As well, rivals such as JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) have enjoyed a similar impetus.

Street view on Bank of America (BAC) branch in NYC with people waiting, pedestrians crossing, crosswalk, bike, road in Manhattan

Source: Andriy Blokhin /

But does that mean you should buy BAC stock ahead of its quarterly disclosure? To be blunt, I’m very skeptical from an intermediate to longer-term perspective. But first, let’s dive into the details.

For earnings per share, covering analysts have a consensus target of 27 cents. This is firmly near the positive end of the estimate spectrum, which ranges from 6 cents to 42 cents. However, this is a steep drop comparatively. In the year-ago quarter, Bank of America delivered an EPS of 74 cents, beating the 71-cent consensus estimate.

On the revenue front, analysts are targeting $21.8 billion. Nominally, this forecast lies in the middle of the estimate spectrum, which ranges from $20.3 billion to $23.3 billion. In Q2 2019, BofA rang up $23.1 billion.

Of course, no one is going to fault BAC stock for missing against last year’s results. What we have today is an unprecedented pandemic. But for those bidding up shares, they see compelling evidence that the coronavirus will eventually fade away. Thus, the current price point represents a discount against enthusiasm down the line.

Will Remdesivir Rescue BAC Stock?

The good news that I’m referring to above is remdesivir, a potential treatment for Covid-19. One of the suddenly relevant components of the Gilead Sciences (NASDAQ:GILD) pipeline, remdesivir has garnered praise from both President Donald Trump and the leading infectious disease expert in the U.S., Dr. Anthony Fauci. In fact, the President recently signed a deal to ensure that Americans have access to the drug.

Further, according to Tina Hesman Saey of

Remdesivir can not only speed recovery, but may cut the chance of dying of COVID-19, preliminary data released by the drug’s maker suggest.

Among severely sick people, the antiviral drug reduced the risk of dying by 62 percent compared with standard care, the Foster City, Calif., drugmaker Gilead Sciences Inc. reported at a virtual scientific conference on July 10.

Hospitalized people taking remdesivir had a 7.4 percent death rate two weeks after treatment started, while those not taking the drug had a 12.5 percent mortality rate, the company reported.

The new data, along with another newly reported study in mice and human cells, add to evidence that remdesivir is effective as a treatment for the coronavirus.

But it wasn’t just efficacy that saw BAC stock and other banking giants enjoy robust gains late last week. Unlike other Covid-19 solutions, remdesivir is a treatment, not a vaccine. While the latter is the holy grail in our war against the novel coronavirus, it may take a long time to get one ready.

However, remdesivir is ready to go now. With surging cases both in the U.S. and throughout the world, time is of the essence.

But Time Is Also a Cruel Mistress for BofA

Just as we were getting back on the long road to the old normal, coronavirus cases started to surge. Later, new infections began to skyrocket. Invariably, we saw a rise in hospitalizations and an uptick in Covid-19-related deaths.

Unfortunately, with so many people not taking the virus seriously, the infections just kept getting worse. Finally, California, which was the first state to lock down its borders, again imposed severe restrictions throughout the Golden State.

According to the Wall Street Journal, California Governor “Gavin Newsom rolled back the state’s reopening and ordered an immediate halt to indoor activities in restaurants, bars, museums, zoos and movie theaters, sending businesses hurrying to close up after they had just begun reopening in recent weeks.”

To say the least, it will be very interesting to see how BAC stock and the rest of the big banks react to this latest setback. As you know, both the May and June jobs reports showed much higher than expected gains in the labor market. But as critics pointed out, much of those gains came from service workers returning to sharply mitigated shifts.

Unless this negative trajectory shifts immediately, we can expect a catastrophic jobs report for either July or August. Not only that, this could be the death knell for perhaps most small businesses in the restaurant industry.

Likely, this will have a detrimental impact on BAC stock as entrepreneurs close up shop. Moreover, hardly anybody will want to take out a business loan in this environment.

Avoid Bank of America Until Further Notice

I understand the implications of being negative on big banks. As economic bellwethers, betting against BofA is like betting against America itself.

To be clear, I’m not suggesting that you should short BAC stock. This is a variable situation and anything could happen. But with multiple negative factors likely to cascade, the smart move is the obvious one – stay away until we get a better read.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.

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