Bank of America (BAC), the second-largest U.S. lender, will report its first-quarter results 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 earnings? Read on to find out my opinion.
Bank of America Corporation (BAC) will report its first quarter results on April 16th. Wall Street expects the bank’s profits and revenue to decline year-over-year. In this article I discussed why it can make sense to wait for a good time to enter the stock.
For the first quarter, BAC’s earnings per share and revenue are expected to decline 17.6% and 3.3% year-over-year to $0.77 billion and $25.39 billion, respectively. The company has a solid earnings history, beating consensus estimates in three of the last four quarters.
For the 2024 fiscal year, BAC expects loan growth in the low to mid-single-digit percentage range. Following fourth-quarter results, BAC CFO Alastair Borthwick said he expects net interest income to be $100 million to $200 million lower in the first quarter compared to the fourth quarter of 2023 and may be weaker in the second quarter as consumers Pay taxes before it improves in the second quarter of the second half of the year.
The Charlotte, North Carolina-based bank’s net interest income is expected to be at the high end of guidance, between $13.90 billion and $14 billion. Expenses are expected to be between $700 million and $800 million higher than in the fourth quarter of 2023. BAC shares have fallen 0.5% in the last month and are up 33.1% over the past six months % increased.
Here’s what you should consider ahead of the upcoming earnings release:
Mixed Financials
BAC’s total revenue, net of interest expense, decreased 10.5% year-over-year to $21.96 billion in the fiscal fourth quarter ended December 31, 2023. Net income attributable to common shareholders fell 58.9% year over year to $7.27 billion. The company’s net interest income fell 5% to $13.95 billion compared to the same quarter last year. Earnings per share were $0.35, down 58.8% year-over-year.
Additionally, the provision for credit losses increased 1.1% year-over-year to $1.10 billion. Additionally, total net charge-offs increased 73% year-over-year. Net charge-offs as a percentage of average outstanding loans and leases were 0.45%, compared to 0.26% in the year-ago quarter.
The CET1 ratio, however, was 11.8%, compared to 11.2% in the same quarter last year. Additionally, total loans and leases increased 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. Net interest income increased 8.5% to $56.93 billion compared to the same period last year.
On the other hand, BAC’s provision for credit losses increased 72.8% year-over-year to $4.39 billion. Net income attributable to common shareholders fell 4.4% year over year to $24.87 billion. The company’s earnings per share were $3.08, down 3.4% year-over-year. Additionally, total net charge-offs increased 74.9% year-over-year to $3.80 billion.
Favorable analyst estimates
Analysts expect BAC’s fiscal 2024 earnings per share and revenue to rise 2% and 1.7% year over year to $3.14 billion and $100.25 billion, respectively. Fiscal 2025 earnings per share and revenue are expected to increase 9% and 2.8% year over year to $3.42 billion and $103.09 billion, respectively.
Mixed profitability
In terms of net profit margin over the last 12 months, BAC stands at 28.15%, 18.3% higher than the industry average of 23.80%.
On the other hand, BAC’s return on assets over the last 12 months was 0.83%, 23.4% lower than the industry average of 1.09%. Its return on common equity of 9.79% over the last 12 months is 10.4% below the industry average of 10.93%.
Mixed review
In terms of non-GAAP forward P/E ratio, BAC’s 11.39x is 13.8% higher than the industry average of 10.01. Its forward price-to-sales ratio of 2.82 is 15.9% higher than the industry average of 2.43.
On the other hand, its trailing 12-month price-to-book value of 1.07 times is 0.3% below the industry average of 1.08 times.
POWR Ratings reflect uncertainty
BAC has an overall rating of C, which equates to Neutral in our POWR Ratings system. POWR Ratings are calculated taking into account 118 different factors, each weighted optimally.
Our proprietary scoring system also rates each stock across eight different categories. BAC has a grade of C for quality, consistent with its mixed profitability. Its beta of 1.39 warrants a grade of C for stability.
It has a grade of C for value, which is consistent with its mixed review.
BAC ranks first among nine stocks in the Money Center Banks industry. Click here to access BAC’s growth, momentum and sentiment scores.
Bottom line
Wall Street expects BAC’s first-quarter earnings per share and revenue to decline year-over-year. Despite the high interest rates, the bank’s net interest income (NII) is expected to remain low in the first quarter and its net interest margin is expected to fall for the fourth time in five quarters. Additionally, an inverted yield curve means BAC faces higher unrealized losses due to its low-interest, long-dated securities.
Despite the weakness at NII, the bank is expected to record significant growth in commercial and investment banking on the back of improved capital market activities. Given stubborn inflation, the Federal Reserve is unlikely to cut interest rates in June, meaning rates will remain higher for longer. While this means banks can charge higher interest rates on loans, they also have to pay more for deposits, which can impact their margins.
Given BAC’s mixed financials, valuation and profitability, it might be prudent to wait for a better entry point for the stock.
How works Can Bank of America Corporation (BAC) stand up to its competitors?
BAC has an overall POWR rating of C, which corresponds to a neutral rating. You can check out these A and B rated stocks in the foreign banking industry: Banco Macro SA (BMA), Banco Santander, SA (SAN) and Banco Bilbao Vizcaya Argentaria, SA (BBVA). Click here to explore other Foreign Bank stocks rated Buy.
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BAC shares rose $0.17 (+0.47%) in premarket trading on Monday. Year-to-date, BAC has gained 7.05%, while the benchmark S&P 500 index has gained 7.81% over the same period.
About the Author: Dipanjan Banchur
Dipanjan was interested in the stock market since his elementary school days. This led to him obtaining a master’s degree in finance and accounting. As an investment analyst and financial journalist, Dipanjan currently has a keen interest in reading and analyzing emerging trends in the financial markets.
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