Bank of America (BAC), the second-largest U.S. lender, will publish its first-quarter earnings on April 16. With the bank’s net interest income expected to decline in the first quarter, should investors consider investing in the stock ahead of its earnings? Read on to learn my view.
Bank of America Corporation (BAC) will unveil its first-quarter results on April 16. Wall Street anticipates a year-over-year decline in the bank’s earnings and revenue. In this piece, I have discussed why waiting for an opportune entry point in the stock could be wise.
For the first quarter, BAC’s EPS and revenue are expected to decline 17.6% and 3.3% year-over-year to $0.77 and $25.39 billion, respectively. The company has a solid earnings history, beating the consensus estimate in three of the trailing four quarters.
For fiscal 2024, BAC expects loans to grow at the low-to mid-single-digit percentage rate. Post its fourth quarter results, BAC’s CFO Alastair Borthwick said he expects net interest income to be $100 million to $200 million lower in the first quarter from the fourth quarter of 2023 and possibly weaken in the second quarter as consumers pay taxes, before improving in the second half of the year.
The Charlotte, North Carolina-based bank’s net interest income is expected to hit the upper range of the forecast of between $13.90 billion and $14 billion. It expects expenses to be between $700 million to $800 million higher than the fourth quarter of 2023. BAC’s stock has declined 0.5% over the past month and gained 33.1% over the past six months.
Here’s what you might want to consider ahead of its upcoming earnings release:
Mixed Financials
BAC’s total revenue, net of interest expense, for the fiscal fourth quarter, which ended December 31, 2023, decreased 10.5% year-over-year to $21.96 billion. Its net income applicable to common stockholders declined 58.9% year-over-year to $7.27 billion. The company’s net interest income fell 5% over the prior-year quarter to $13.95 billion. Its EPS came in at $0.35, representing a decline of 58.8% year-over-year.
In addition, its provision for credit losses rose 1.1% year-over-year to $1.10 billion. Also, its total net charge-offs increased 73% year-over-year. The net charge-offs as a percentage of average loans and leases outstanding stood at 0.45%, compared to 0.26% in the prior-year quarter.
On the other hand, its CET1 ratio came in at 11.8%, compared to 11.2% in the prior-year quarter. Also, its total loans and leases rose 0.8% year-over-year to $1.05 trillion.
For the fiscal year ended December 31, 2023, BAC’s total revenue, net of interest expense, increased 3.8% year-over-year to $98.58 billion. Its net interest income rose 8.5% over the prior-year period to $56.93 billion.
On the other hand, BAC’s provision for credit losses rose 72.8% year-over-year to $4.39 billion. Its net income applicable to common shareholders declined 4.4% year-over-year to $24.87 billion. The company’s EPS came in at $3.08, representing a decline of 3.4% year-over-year. In addition, its total net charge-offs rose 74.9% year-over-year to $3.80 billion.
Favorable Analyst Estimates
Analysts expect BAC’s fiscal 2024 EPS and revenue to increase 2% and 1.7% year-over-year to $3.14 and $100.25 billion, respectively. Its fiscal 2025 EPS and revenue are expected to grow 9% and 2.8% year-over-year to $3.42 and $103.09 billion, respectively.
Mixed Profitability
In terms of the trailing-12-month net income margin, BAC’s 28.15% is 18.3% higher than the 23.80% industry average.
On the other hand, BAC’s 0.83% trailing-12-month Return on Total Assets is 23.4% lower than the 1.09% industry average. Its 9.79% trailing-12-month Return on Common Equity is 10.4% lower than the 10.93% industry average.
Mixed Valuation
In terms of forward non-GAAP P/E, BAC’s 11.39x is 13.8% higher than the 10.01x industry average. Its 2.82x forward Price/Sales is 15.9% higher than the 2.43x industry average.
On the other hand, its 1.07x trailing-12-month Price/Book is 0.3% lower than the 1.08x industry average.
POWR Ratings Reflect Uncertainty
BAC has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. BAC has a C grade for Quality, consistent with its mixed profitability. Its 1.39 beta justifies its C grade for Stability.
It has a C grade for Value, which is in sync with its mixed valuation.
BAC is ranked first out of 9 stocks in the Money Center Banks industry. Click here to access BAC’s Growth, Momentum, and Sentiment ratings.
Bottom Line
Wall Street expects BAC’s EPS and revenue in the first quarter to decline year-over-year. Despite the high-interest rates, the bank’s net interest income (NII) is expected to remain compressed in the first quarter, with the net interest margin likely to drop for the fourth time in five quarters. Moreover, an inverted yield curve means BAC is stuck with higher unrealized losses due to its low-yielding, long-dated securities.
Despite the weakness in NII, the bank is expected to have logged substantial gains in trading and investment banking due to improved capital markets activity. With sticky inflation, the Federal Reserve is unlikely to cut interest rates in June, meaning interest rates will remain higher-for-longer. While this means that banks can charge higher rates on loans, they will also have to pay more for deposits, which may impact their margins.
Given BAC’s mixed financials, valuation, and profitability, it could be wise to wait for a better entry point in the stock.
How Does Bank of America Corporation (BAC) Stack Up Against Its Peers?
BAC has an overall POWR Rating of C, equating to a Neutral rating. You may check out these A and B-rated stocks within the Foreign Banks industry: Banco Macro S.A. (BMA), Banco Santander, S.A. (SAN), and Banco Bilbao Vizcaya Argentaria, S.A. (BBVA). For exploring more Buy-rated Foreign Banks stocks, click here.
What To Do Next?
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BAC shares rose $0.17 (+0.47%) in premarket trading Monday. Year-to-date, BAC has gained 7.05%, versus a 7.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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