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Bank of America Corp. (BAC - Analyst Report) is slated to release second-quarter 2014 results tomorrow, Jul 16, before the opening bell.

Last quarter, BofA lost its earnings momentum due to a tough industry backdrop and reported a loss of 5 cents per share. Previously announced litigation expense and related legal reserves were mainly responsible for such disappointing results. Also, lack of top-line growth, higher provision and unfavorable expenses dampened the bottom line.

Will BofA manage to regain profitability this quarter or should we expect another earnings miss? Let us see how things have shaped up for this announcement.

Factors to Impact Q2 Results

Litigation issues continue to hound BofA. Its negotiations with the U.S. Justice Department to resolve mortgage-related charges failed, as the parties could not agree on the settlement amount. Hence, increased legal reserves to address the issue have perhaps put an additional pressure on BofA’s bottom line in the quarter.

Also, the continued overall tough industry background during the quarter will likely pressurize revenue growth. Further, we do not expect any remarkable improvement in interest income given the persistent low-rate environment.

Additionally, low client activity will likely add to the woes. BofA’s non-interest income will mostly remain subdued due to lower trading and mortgage-banking revenues.

Further, the discovery of an accounting error leading to a downward revision of capital ratios and consequent re-submission of a tapered 2014 capital plan continues to erode investors’ confidence on the stock.

Nevertheless, BofA’s efforts to realign and improve its balance sheet, along with the cost-savings initiatives are commendable. The company has been consolidating branches, retrenching workers and closing/selling unprofitable businesses during the quarter.

However, BofA’s activities during the quarter failed to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined 3.33% to 29 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that BofA is likely to beat the Zacks Consensus Estimate in the upcoming release. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP:  The Earnings ESP for BofA is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate stand at 29 cents.

Zacks Rank: BofA’s Zacks Rank #4 (Sell) further reduces the predictive power of ESP.

Stocks to Consider

Here are a few banking stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

The PNC Financial Services Group, Inc. (PNC - Analyst Report) has an Earnings ESP of +0.57% and carries a Zacks Rank #3. It is scheduled to report results on Jul 16.

Fifth Third Bancorp (FITB - Analyst Report) has an Earnings ESP of +4.44% and carries a Zacks Rank #3. It is scheduled to report results on Jul 17.

Regions Financial Corp. (RF - Analyst Report) has an earnings ESP of +4.76% and carries a Zacks Rank #3. It is scheduled to report results on Jul 22.

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