Bank of America Corporation’s (BAC) earnings release for the third quarter is slated for October 14, before the market opens. Over the past year, shares of the banking giant have surged 70.5%, and are currently trading at over $43. A strong set of numbers could be the catalyst for a big move upward, so let’s take a closer look at what analysts on the Street are expecting.
Earnings Preview
BofA EPS is expected to be $0.71 on revenues of $21.66 billion in the third quarter. Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at $0.82 per share.
Prior Period Results
In the previous quarter, the company reported earnings of $1.03, which more than doubled from the prior-year quarter. Additionally, the result beat the consensus estimate of $0.77. On the other side, net revenue declined 3.6% to $21.5 billion and marginally missed analysts’ expectations of $21.8 billion. (See Bank of America stock charts on TipRanks)
Markedly, BofA’s earnings history depicts mixed performance over the past four quarters, with upbeat earnings in all, but revenue miss in three of the four quarters.
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Factors to Watch For
Global Wealth and Investment Management, Private Bank, Global Banking, and Global Markets are major verticals under Bank of America’s regime. In the current era of digitization, the bank has continued to experience strong client growth and advisor engagement, with increased digital usage.
Improving macroeconomic outlook, decent cash reserves, low interest rates, the increasing roll-out of COVID-19 vaccines globally, and proposed tax reforms by President Joe Biden are some of the macro-economic factors that might have aided BofA’s third-quarter results.
Markedly, the quarter saw a record high deal-making inspiring M&A activities and boosting the company’s advisory revenues in the to-be-reported quarter. Additionally, increased streamlining of businesses to propel profitability is likely to have acted as a tailwind, via payment of advisory fees to the bank.
Additionally, a prospering equity underwriting business on the back of strong IPO market activities and a steady rise in follow-up equity issuances might have acted as positive catalysts. Moreover, decent bond issuance volumes are anticipated amid near-zero interest rates and the Federal Reserve’s steady bond purchase program, which commenced last March. Consequently, strong numbers are expected from BofA’s underwriting business in the third quarter as well.
On the trading front, no major support is expected. Compared to the prior-year period’s record trading volumes, normalized fixed-income markets might have dampened strong equity trading revenues in the to-be-reported quarter.
Additionally, reserve release is likely to have marginally benefited the third quarter, as most releases occurred in prior quarters.
When it comes to the core banking front, loan demand remained soft on subdued commercial, industrial, and revolving home equity loans, as per the Fed data. Nonetheless, a higher demand for consumer loans, including credit loan and real estate loan demand, might have been an offsetting factor.
Additionally, a rise in the 10-year Treasury yield at the end of September is likely to have driven net interest income, with a low interest-rate environment continued to impact net interest margin.
On the expense front, rising expenses on technology and strategic plans might have hindered the bank’s profitability, but decent operating efficiency depicted by BofA in the prior period might have offered some respite.
Analyst Recommendations
Prior to the third-quarter BofA earnings report, Jefferies analyst Ken Usdin increased the price target on the stock to $48 (9.64% upside potential) from $41, while maintaining a Hold rating.
Another analyst, Wolfe Research’s Steven Chubak, downgraded the stock to Hold from Buy, but did not assign a price target.
Overall, the stock has a Moderate Buy consensus rating based on 5 Buys, 4 Holds, and 1 Sell. The average Bank of America price target of $44.83 implies 2.4% upside potential from current levels.
Risk Analysis
Investors should always be aware of the risks involved in any stock. According to the new TipRanks’ Risk Factors tool, BofA is at risk mainly from two factors: Finance and Corporate, and Macro and Political, which contribute 42% and 26%, respectively, to the total 31 risks identified for the stock. Within the Finance and Corporate risk category, BAC has 13 risks, details of which can be found on the TipRanks website.
Disclosure: At the time of publication, Priti Ramgarhia did not have a position in any of the securities mentioned in this article.
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