North America

Earnings Preview: Bank of America Q3 2017 (BAC)

By: Craig Bowles

Overview

Bank of America (BAC) is scheduled to report 3Q 2017 earnings before the opening bell on Friday, October 13th. 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 day’s releases by JP Morgan Chase (JPM) and Citigroup (C).

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): The analyst consensus estimate is $0.46 (range $0.43 to $0.52). (Source: Yahoo! Finance) Consensus was $0.47 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 0.5% y/y increase to $21.98 bln (range $21.44 bln to $22.65 bln).
  • Bank of America shares have a Price/Book of 1.1 compared to the 5-year average 0.7; Price/Revenue of 3.3 compared to the 5-year average of 1.8. The dividend yield of 1.3% compares to the 5-year average 0.7% but below the industry’s 2.9%.
  • Analysts are generally bullish on BAC, with 24 Buy, 8 Hold, and 1 Sell rating. (source: MarketBeat.com)
  • Insiders sold 146,338 shares in the last three months and 2,143,463 shares in the past year. (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 1.22%. Options are pricing in an implied move of 2.65% off earnings.

Recent News

  • 10/06: Strategas reiterated a positive outlook on the banks despite the flattening yield curve citing that the higher 2-year yields are positive for Bank stocks, according to a post on Barron’s.com.
  • 09/27: Bank of America Corporation agreed to pay $2.5 million to the federal government to settle an investigation conducted by the United States into claims that traders on the swaps desk in New York had used insider information to trade ahead of block futures trades with counterparties, according to a post on Zack’s.com.
  • 09/20: The Fed will start winding down its controversial “quantitative easing” strategy under which it bought trillions of dollars in bonds, according to a post on MarketWatch.com.
  • 09/08: Oppenheimer thinks bank stocks are back to trading as bond proxies but sees the valuation of bank stocks, increased profitability, massive buyback authorizations, de-risked balance sheets and modest underlying loan growth outweighing negatives from North Korea, hurricanes and continued interest rate increases, according to a post on Barron’s.com.
  • 08/30: Warren Buffett became Bank of America’s largest shareholder. By exercising warrants that his Berkshire Hathaway bought during 2011, Buffett acquired about 700 million shares at $7.14, according to a post on Barron’s.com.
  • 08/18: Credit Suisse believes credit quality could be a bright spot for the banks. The typically slow season of July and August in capital markets means a pickup will have to happen in September, according to a post on Barron’s.com.
  • 08/09: Wells Fargo resumed coverage of Bank of America with an Outperform rating citing improving rate conditions, better regulation, and risk opportunities, according to a post on StreetInsider.com.

Technical Review

Bank of America stock still trades at less than half the 2006 high but a 1-year, 2-year and even a 5-year chart comparison shows the stock as the top performer among major banks. BAC has edged above the March $25.72 high. The stock has 2017 balance area in the low $20s, so a move back below $25 might prove sticky. (Chart courtesy of StockCharts.com)

Summary

Bank of America is benefitting from several other large banks having cut back on retail banking. BAC still has a bullish analyst following and the stock has been supported by increased Fed approved stock buybacks and dividend hikes. Insider selling has been limited the past six months. Over the last four quarters, the bank has beaten estimates by an average of 5c. Estimize consensus for an EPS of $0.48 on revenue of $22.389 bln compares to analyst consensus of $0.46 on revenue of $21.98 bln.

 

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