North America

Earnings Preview: Bank of America Q2 2017 (BAC)

By: Craig Bowles

Overview

Bank of America (BAC) is scheduled to report 2Q 2017 earnings before the opening bell on Tuesday, July 18th. The results are expected to be released at approximately 6:45 a.m. ET with a conference call webcast at Bank of America Investor Relations to follow at 8:30 a.m. Bank of America has the potential to impact the broader market indices, including the S&P Index Futures and corresponding ETFs. BAC’s earnings will follow the previous week’s releases by JP Morgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC).

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): The analyst consensus estimate is $0.43 (range $0.40 to $0.45). (Source: Yahoo! Finance) Consensus was $0.46 three months ago. Bank of America typically provides a clean earnings number but could produce an Adjusted Earnings Per Share or Earnings Per Share Excluding Items when necessary that compares with consensus estimates.
  • Revenues: Consensus expectations are for a 4.9% y/y increase to $21.80 bln (range $21.39 bln to $22.23 bln).
  • Bank of America shares have a Price/Book of 1.0 compared to the 5-year average 0.7; Price/Revenue of 3.1 compared to the 5-year average of 1.8. The dividend yield of 1.2% compares to the 5-year average 0.7% but below the industry’s 2.9%.
  • Analysts are generally bullish on BAC, with 23 Buy, 8 Hold, and 1 Sell rating. (source: MarketBeat.com)
  • Insiders bought 14,072 shares in the last three months. (source: NASDAQ.com) In June of 2017, BAC approved a $12 bln stock buyback through June 2018 compared to the previous two approvals of $5 bln.
  • Bank of America shares have a 1-day average price change on earnings of 1.52%. Options are pricing in an implied move of 3.18% off earnings.

Recent News

  • 07/11: KBW lists Bank of America among banks that investors should overweight for second quarter earnings citing better loan growth given consumer and business optimism and a belief the outlook for margins and loan growth could lift forward estimates, according to a post on Barron’s.com.
  • 06/28: Following positive results from the annual stress tests, the Fed approved capital return plans of all 34 banks. BAC plans to increase its quarterly dividend 60% to 12c and increased buybacks, according to a post on CNBC.com.
  • 06/19: Despite a flattening yield curve, big banks can benefit from higher payouts, relatively low valuations, and better earnings driven by higher rates. KBW warns the “bear flattener” of the yield curve pressures income, according to a post on Barron’s.com.
  • 06/17: Large lenders are poised to increase dividends by double digits, according to a post on Barron’s.com.
  • 06/13: Bank of America, JPMorgan Chase, Wells Fargo, Citi, and others launched Zelle, a money-transfer service that is built into your mobile banking app and allows you to send money to friends, even if they use a different bank, according to a post on Barron’s.com.
  • 06/06: Morgan Stanley sees financial regulatory reform progress picking up this summer, according to a post on Barron’s.com.

Technical Review

Major banks were leaders in the Trump rally and Bank of America stock has been one of the strongest banks the past year. BAC like most banks trades below the March $25.72 high. The stock had trouble pushing above $18 after the 2009 rebound, so had consolidated for a number of years before Trump rally. (Chart courtesy of StockCharts.com)

 

Summary

Bank of America still has a bullish analyst following and the stock has been supported by increased Fed approved stock buybacks and dividend hikes. Insiders bought some shares the past three months. Over the last four quarters, the bank has beaten estimates by an average of 6c. Estimize consensus for an EPS of $0.46 on revenue of $22.276 bln compares to analyst consensus of $0.43 on revenue of $21.80 bln.

 

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