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Why Is Bank of America (BAC) Up 4.6% Since Last Earnings Report?
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A month has gone by since the last earnings report for Bank of America (BAC - Free Report) . Shares have added about 4.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Bank of America due for a pullback? Before we dive into how investors and analysts have reacted as 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.
Bank of America Q4 Earnings Beat, Revenues Down Y/Y
Bank of America’s fourth-quarter 2020 earnings of 59 cents per share beat the Zacks Consensus Estimate of 56 cents. However, the bottom line was 21% below the prior-year quarter level.
Driven by rise in deal making activities during the fourth quarter, advisory fees jumped 45% from the prior-year quarter. Also, equity underwriting fees surged 141%. Conversely, debt issuance fees fell 10%. Nonetheless, total investment banking fees grew 36%.
Moreover, Bank of America’s trading numbers were decent. Sales and trading revenues (excluding DVA) grew 7% from the prior-year quarter. This was driven by 30% surge in equity trading income, while fixed income trading declined 5%.
Backed by improvement in consumer spending, Bank of America witnessed 3% growth in total card income on a year-over-year basis. Further, a substantial reserve release, leading to lower credit costs, supported the company’s financials.
However, as expected, a low interest rate environment and soft loan demand hurt Bank of America’s net interest income. Additionally, the company recorded a rise in operating expenses.
Furthermore, performance of the company’s business segments, in terms of net income generation, was disappointing. All segments, except Global Markets, witnessed a decline in net income. Overall, net income fell 22% from the prior-year quarter to $5.5 billion.
Lower Rates & Fall in Fee Income Hurt Revenues, Expenses Rise
Net revenues amounted to $20.1 billion, which missed the Zacks Consensus Estimate of $20.4 billion. Further, the top line was down 10% on a year-over-year basis.
Net interest income (fully taxable-equivalent basis) declined 16% year over year to $10.4 billion, mainly due to lower interest rates and fall in loan balance. Also, net interest yield contracted 64 basis points (bps) to 1.71%.
Further, non-interest income decreased 4% from the year-ago quarter to $9.8 billion.
Non-interest expenses were $13.9 billion, up 5%.
Efficiency ratio was 69.29%, up from 59.24% in the year-ago quarter. Increase in the efficiency ratio indicates deterioration in profitability.
Credit Quality: Mixed Bag
Provision for credit losses plunged 94% on a year-over-year basis to $53 million. The fall was mainly due to a reserve release of $828 million. Also, net charge-offs declined 8% to $881 million.
As of Dec 31, 2020, non-performing loans and leases were 0.54%, up 18 bps.
Strong Capital Position
The company’s book value per share as of Dec 31, 2020 was $28.72 compared with $27.32 a year ago. Tangible book value per share as of fourth quarter-end was $20.60, up from $19.41. At the end of December 2020, common equity tier 1 capital ratio (Advanced approaches) was 12.9%, up from 11.5% as of Dec 31, 2019.
Outlook
Management expects first-quarter 2020 expenses to include roughly $350 million for seasonally elevated personnel cost.
The increase in later stage delinquencies is expected to lead to a slight rise in card net charge-offs in the first quarter, which might decline again in the second quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 9.5% due to these changes.
VGM Scores
At this time, Bank of America has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Bank of America has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Bank of America (BAC) Up 4.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Bank of America (BAC - Free Report) . Shares have added about 4.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Bank of America due for a pullback? Before we dive into how investors and analysts have reacted as 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.
Bank of America Q4 Earnings Beat, Revenues Down Y/Y
Bank of America’s fourth-quarter 2020 earnings of 59 cents per share beat the Zacks Consensus Estimate of 56 cents. However, the bottom line was 21% below the prior-year quarter level.
Driven by rise in deal making activities during the fourth quarter, advisory fees jumped 45% from the prior-year quarter. Also, equity underwriting fees surged 141%. Conversely, debt issuance fees fell 10%. Nonetheless, total investment banking fees grew 36%.
Moreover, Bank of America’s trading numbers were decent. Sales and trading revenues (excluding DVA) grew 7% from the prior-year quarter. This was driven by 30% surge in equity trading income, while fixed income trading declined 5%.
Backed by improvement in consumer spending, Bank of America witnessed 3% growth in total card income on a year-over-year basis. Further, a substantial reserve release, leading to lower credit costs, supported the company’s financials.
However, as expected, a low interest rate environment and soft loan demand hurt Bank of America’s net interest income. Additionally, the company recorded a rise in operating expenses.
Furthermore, performance of the company’s business segments, in terms of net income generation, was disappointing. All segments, except Global Markets, witnessed a decline in net income. Overall, net income fell 22% from the prior-year quarter to $5.5 billion.
Lower Rates & Fall in Fee Income Hurt Revenues, Expenses Rise
Net revenues amounted to $20.1 billion, which missed the Zacks Consensus Estimate of $20.4 billion. Further, the top line was down 10% on a year-over-year basis.
Net interest income (fully taxable-equivalent basis) declined 16% year over year to $10.4 billion, mainly due to lower interest rates and fall in loan balance. Also, net interest yield contracted 64 basis points (bps) to 1.71%.
Further, non-interest income decreased 4% from the year-ago quarter to $9.8 billion.
Non-interest expenses were $13.9 billion, up 5%.
Efficiency ratio was 69.29%, up from 59.24% in the year-ago quarter. Increase in the efficiency ratio indicates deterioration in profitability.
Credit Quality: Mixed Bag
Provision for credit losses plunged 94% on a year-over-year basis to $53 million. The fall was mainly due to a reserve release of $828 million. Also, net charge-offs declined 8% to $881 million.
As of Dec 31, 2020, non-performing loans and leases were 0.54%, up 18 bps.
Strong Capital Position
The company’s book value per share as of Dec 31, 2020 was $28.72 compared with $27.32 a year ago. Tangible book value per share as of fourth quarter-end was $20.60, up from $19.41. At the end of December 2020, common equity tier 1 capital ratio (Advanced approaches) was 12.9%, up from 11.5% as of Dec 31, 2019.
Outlook
Management expects first-quarter 2020 expenses to include roughly $350 million for seasonally elevated personnel cost.
The increase in later stage delinquencies is expected to lead to a slight rise in card net charge-offs in the first quarter, which might decline again in the second quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 9.5% due to these changes.
VGM Scores
At this time, Bank of America has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Bank of America has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.