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Bank of America (BAC) Up 2.3% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Bank of America Corporation (BAC - Free Report) . Shares have added about 2.3% in the past month, outperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is BAC due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
BofA Beats Q4 Earnings on Loan Growth, Higher Rates
Despite the trading slump, loan growth and impressive investment banking performance drove Bank of America’s fourth quarter 2017 earnings of 47 cents per share, which outpaced the Zacks Consensus Estimate of 44 cents. Also, the figure was 21% higher than the prior-year quarter. Notably, the results exclude a one-time charge of 27 cents related to the tax act.
Impressive net interest income growth (driven by loan growth and higher interest rates), stable equity trading income and higher investment banking fees supported revenues. Operating expenses also recorded a decline.
However, a fall in fixed income trading revenues (as expected) and mortgage banking losses were the undermining factors. Also, drastic rise in provision for credit losses acted as a headwind.
Overall performance of the company’s business segments, in terms of net income generation, was decent. All segments witnessed improvement in net income except Global Markets and All Others.
Loans & Higher Rates Support Revenues, Expenses Down
Adjusted net revenues amounted to $21.4 billion, marginally above the Zacks Consensus Estimate of $21.3 billion. Also, it was up nearly 7% from the prior-year quarter. The figure in the reported quarter excluded $0.9 billion of one-time charge related to the tax act.
Net interest income, on a fully taxable-equivalent basis, grew 11% year over year to $11.7 billion. Further, net interest yield rose 16 basis points (bps) year over year to 2.39%.
Non-interest income declined 7% from the year-ago quarter to $9 billion. The fall was mainly due to lower mortgage banking income and the impact of the tax act.
Non-interest expenses were $13.3 billion, down 1% year over year. The fall reflects reduced personnel and non-personnel expenses.
Provisions Jump
Provision for credit losses increased 29% year over year to $1 billion, mainly due to a single-name non-U.S. commercial charge-off. Also, net charge-offs jumped 41% from the year-ago quarter to $1.2 billion.
However, as of Dec 31, 2017, ratio of nonperforming loans, leases and foreclosed properties was 0.73%, down 16 bps year over year.
Strong Capital Position
The company’s book value per share as of Dec 31, 2017 was $23.80 compared with $23.97 as of Dec 31, 2016. Tangible book value per share as of Dec 31, 2017 was $16.96, up from $16.89 as of Dec 31, 2016.
As of Dec 31, 2017, the company’s common equity tier 1 capital ratio (Basel 3 Fully Phased-in) (Advanced approaches) was 11.8%, up from 11.0% as of Dec 31, 2016.
Outlook
In 2018, management expects NII growth to be solid driven by loan and deposit growth as well as net interest yield expansion, partially offset by absence of NII from the U.K. card business that was sold in 2017.
Additionally, on an FTE basis, NII is anticipated to fall nearly $120 million each quarter owing the tax act.
In the first quarter 2018, NII is projected to benefit from the rate hike in December 2017. However, this is expected to be partially offset by two less days in the quarter (lowering NII by $175 million) and seasonal decline in card loans.
The company remains on track to reach its expense target of nearly $53 billion by 2018. Also, expenses are projected to remain relatively stable in 2019.
For 2018, GAAP tax rate (in absence of unusual items) is expected to be roughly 20%.
The company expects CET1 under an advanced basis to be more than 10% by 2019. Management anticipates return on tangible common equity to be 13.5%, over the long term.
In the medium term, management projects loan growth to be in a low single digit led by improvement in consumer loans (especially mortgage). Also, auto and card portfolios are anticipated to witness a rise, partially offset by continued run off from home equity loans.
Management expects provisions to roughly match net charge offs as reserve releases moderate gradually as the company builds allowance in sync with loan growth.
Management expects to return more capital to shareholders given the benefits from the tax act.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted by 8.7% due to these changes.
At this time, BAC has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, BAC has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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Bank of America (BAC) Up 2.3% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Bank of America Corporation (BAC - Free Report) . Shares have added about 2.3% in the past month, outperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is BAC due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
BofA Beats Q4 Earnings on Loan Growth, Higher Rates
Despite the trading slump, loan growth and impressive investment banking performance drove Bank of America’s fourth quarter 2017 earnings of 47 cents per share, which outpaced the Zacks Consensus Estimate of 44 cents. Also, the figure was 21% higher than the prior-year quarter. Notably, the results exclude a one-time charge of 27 cents related to the tax act.
Impressive net interest income growth (driven by loan growth and higher interest rates), stable equity trading income and higher investment banking fees supported revenues. Operating expenses also recorded a decline.
However, a fall in fixed income trading revenues (as expected) and mortgage banking losses were the undermining factors. Also, drastic rise in provision for credit losses acted as a headwind.
Overall performance of the company’s business segments, in terms of net income generation, was decent. All segments witnessed improvement in net income except Global Markets and All Others.
Loans & Higher Rates Support Revenues, Expenses Down
Adjusted net revenues amounted to $21.4 billion, marginally above the Zacks Consensus Estimate of $21.3 billion. Also, it was up nearly 7% from the prior-year quarter. The figure in the reported quarter excluded $0.9 billion of one-time charge related to the tax act.
Net interest income, on a fully taxable-equivalent basis, grew 11% year over year to $11.7 billion. Further, net interest yield rose 16 basis points (bps) year over year to 2.39%.
Non-interest income declined 7% from the year-ago quarter to $9 billion. The fall was mainly due to lower mortgage banking income and the impact of the tax act.
Non-interest expenses were $13.3 billion, down 1% year over year. The fall reflects reduced personnel and non-personnel expenses.
Provisions Jump
Provision for credit losses increased 29% year over year to $1 billion, mainly due to a single-name non-U.S. commercial charge-off. Also, net charge-offs jumped 41% from the year-ago quarter to $1.2 billion.
However, as of Dec 31, 2017, ratio of nonperforming loans, leases and foreclosed properties was 0.73%, down 16 bps year over year.
Strong Capital Position
The company’s book value per share as of Dec 31, 2017 was $23.80 compared with $23.97 as of Dec 31, 2016. Tangible book value per share as of Dec 31, 2017 was $16.96, up from $16.89 as of Dec 31, 2016.
As of Dec 31, 2017, the company’s common equity tier 1 capital ratio (Basel 3 Fully Phased-in) (Advanced approaches) was 11.8%, up from 11.0% as of Dec 31, 2016.
Outlook
In 2018, management expects NII growth to be solid driven by loan and deposit growth as well as net interest yield expansion, partially offset by absence of NII from the U.K. card business that was sold in 2017.
Additionally, on an FTE basis, NII is anticipated to fall nearly $120 million each quarter owing the tax act.
In the first quarter 2018, NII is projected to benefit from the rate hike in December 2017. However, this is expected to be partially offset by two less days in the quarter (lowering NII by $175 million) and seasonal decline in card loans.
The company remains on track to reach its expense target of nearly $53 billion by 2018. Also, expenses are projected to remain relatively stable in 2019.
For 2018, GAAP tax rate (in absence of unusual items) is expected to be roughly 20%.
The company expects CET1 under an advanced basis to be more than 10% by 2019. Management anticipates return on tangible common equity to be 13.5%, over the long term.
In the medium term, management projects loan growth to be in a low single digit led by improvement in consumer loans (especially mortgage). Also, auto and card portfolios are anticipated to witness a rise, partially offset by continued run off from home equity loans.
Management expects provisions to roughly match net charge offs as reserve releases moderate gradually as the company builds allowance in sync with loan growth.
Management expects to return more capital to shareholders given the benefits from the tax act.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted by 8.7% due to these changes.
Bank of America Corporation Price and Consensus
Bank of America Corporation Price and Consensus | Bank of America Corporation Quote
VGM Scores
At this time, BAC has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, BAC has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.