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Why Is Bank of America (BAC) Up 8.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Bank of America (BAC - Free Report) . Shares have added about 8.1% 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 its most recent earnings report in order to get a better handle on the important drivers.

BofA's Q3 Earnings Top on Trading, Investment Banking

Improved capital market performance drove Bank of America’s third-quarter 2019 earnings of 56 cents per share, which outpaced the Zacks Consensus Estimate of 50 cents. However, the figure was down 15% from the prior-year quarter.

Results included merchant services joint venture impairment charges of $2.1 million. Excluding this charge, adjusted earnings were 75 cents per share.

Defying market expectations, Bank of America came out with improved trading and investment banking numbers. Trading revenues (excluding DVA) grew 4% as both equity trading income and fixed income trading revenues witnessed year-over-year improvement.

Additionally, investment banking fees surged 40% as both underwriting and advisory fees increased. Equity underwriting income and debt underwriting fees recorded rise of 21% and 6%, respectively. Further, advisory fees jumped 80%.

Also, marginal rise in net interest income reflects decent loan growth while lower interest rates were the offsetting factor. Moreover, despite taking several initiatives, including technology upgrades at existing ATMs and branches, and opening new branches, the company was able to manage expenses efficiently.

However, provision for credit losses increased during the reported quarter.

Overall performance of the company’s business segments, in terms of net income generation, was decent. All segments, except Global Markets and All Others, witnessed a rise in net income.

Loan Growth Aids Revenues, Adjusted Expenses Up Slightly

Net revenues amounted to $22.8 billion, which marginally beat the Zacks Consensus Estimate of $22.2 billion. Also, the reported figure was up slightly on a year-over-year basis.

Net interest income, on a fully taxable-equivalent basis, grew 1% year over year to $12.3 billion, driven by loan and deposit growth. However, net interest yield was down 4 basis points (bps) to 2.41%.

Non-interest income declined marginally from the year-ago quarter to $10.6 billion.

Non-interest expenses were $15.2 billion, up 16.6%. After excluding merchant services joint venture impairment charges of $2.1 million, adjusted operating expenses were up nearly 1%.

Efficiency ratio was 66.51%, up from 57.27% in the year-ago quarter. This included the above-mentioned impairment charges. Increase in efficiency ratio indicates deterioration in profitability.

Credit Quality: Mixed Bag

Provision for credit losses increased 9% on a year-over-year basis to $779 million.

However, net charge-offs (NCOs) declined 13% to $811 million. Notably, excluding recoveries from sales of previously charged-off non-core consumer real estate loans, NCOs increased year over year. Further, as of Sep 30, 2019, ratio of non-performing assets ratio was 0.39%, down 20 bps.

Strong Capital Position

The company’s book value per share as of Sep 30, 2019, was $26.96 compared with $24.33 on Sep 30, 2018. Tangible book value per share as of the third-quarter end was $19.26, up from $17.23 a year ago.

At the end of September 2019, the company’s common equity tier 1 capital ratio (Basel 3 Fully Phased-in) (Advanced approaches) was 11.7%, up from 11.5% as of Sep 30, 2018.

Share Repurchase Update

During the reported quarter, Bank of America repurchased shares worth $7.6 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Bank of America has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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