Together with other financial institutions, Bank of America is scheduled to release its fourth quarter earnings report before the opening bell on Friday. Since the stock made a graceful exit in 2016, bets were placed on the bank with huge expectation of upbeat earnings. Can the second largest bank in the US deliver? Here’s what to expect on its last report for the three months of 2016.
Analysts’ Point of View
With high hopes on the improvement of the US economy, the Bank of America posted remarkable gains in the last quarter of 2016. The victory of Trump brought positive notion in the recovery of the largest economy in the world as he signaled for an improvement of banking regulations and an increase in fiscal spending. The momentum was supported by a rate hike from the Federal Reserve. Consequently, the optimism in the market boosted the financial sector with soaring US dollar on the side.
Based on the FSM analysts of FSM, the Bank of America will probably have $0.40 to $0.37 earnings per share for the quarter. The revenue is expected to be around $20 to $21 billion for the last three months of 2016. On the other hand, Zacks Investment Research provided a consensus forecast of $0.38 EPS based on 11 analysts.
Further, the Wall Street released an expected growth of EPS for almost six times of the rate of the revenue - a 40 percent rally year-over-year.
Pros and Cons
CEO Brian Moynihan indicated a strong anticipation of 15 percent rally of the fixed-income trading revenue and highlighted the significance of cost controls to sustain the earnings of the bank this year. The efficient-cost control effort of the bank may lead to $13 billion core expenses for the fourth quarter excluding the legal costs and provisions.
On the other hand, the mild gains of crude oil in the last three months may serve as headwind in the energy-sector loans of the Bank. Back in November, the agreed OPEC output cut drove the crude oil prices higher, but as expected the skepticism in the plan and the existing supply glut erased the gains.
The soaring greenback eventually boosted the US bonds, whereas the 10-year Treasury yield made a huge rally for almost two months. This scenario could bring an impact in the net interest margin amid the prime lending rate hike of the bank. Also, the increase in mortgage rates might leave an unfavorable implication in the total revenue of the bank.
Bank of America closed Thursday at $23.07, gaining 0.57 percent after advancing 0.56 percent to $22.94 in the pre-market. The stock had an intraday high of $23.07 and an intraday low of $22.72. Currently, the market capitalization stands at $237.16 billion, with a price earnings ratio of 17.12 and dividend yield of 1.30 percent.
Notably, the stock made a significant move before the end of 2016. Bank of America started the fourth quarter at the 15.00 levels and ended at 22.00 levels. In light of this, the analysts are expecting a greater return on its report this Friday.
Last quarter, the Bank reported a 3 percent increase of revenue from $21.0 billion to $21.6 billion with an EPS of $0.41. The net interest income rallied from $9.9 billion on a GAAP basis to $10.2 billion, while noninterest income went up from $11.1 billion to $11.4 billion. As Mr. Moynihan indicated in its statement, the growth was palpable on its revenue, reduced expenses and continuous risk management, resulting in a 17 percent increase in pretax earnings. Therefore, this upcoming report will reveal the stability of the Bank and if it can uphold its monumental run.