Q3 Preview: Investment Banking, Economy to Hamper BofA (BAC) Results


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Shares of Bank of America Corp. ( BAC ) are ticking lower Monday ahead of it's third-quarter earnings report.

Ahead of the bell Tuesday, BofA is expected to report earnings of 20 cents per share on revenue of $25.95 billion. The number would be a drop from 33 cents reported last quarter, and a 26 percent dip from earnings of 27 cents per share reported in the same period last year.

To no one's surprise, BofA, like other financials, had a rough quarter. Shares dropped 44 percent to $6.12 at the end of September. BofA's stock price is down slightly since, and off 54 percent in 2011. BofA has traded within a range of $5.13 to $15.31 over the last 52-week period.

BofA trades at 5.4x fiscal 2012 earnings expectations, compared with 6.0x for Citigroup ( C ), 7.4x at Wells Fargo ( WFC ), and 6.0x for J.P. Morgan ( JPM ).

The most recent quarterly data pegs BofA with a book value of $20.30 per share, and tangible book value of $12.65 per share.

Data from Bloomberg has 16 analysts at Buy on BofA, 20 with a Hold, and two suggesting to Sell. The Street price target average is $10.40, with a low of $6.50 and high of $18.00.

Don't forget Warren Buffett's $5 billion bet made in late-August, and BofA's plans to trim its workforce by 30,000 positions in an effort to streamline operations.

Analyst Comments

  • Keefe, Bruyette, & Woods is modeling for earnings of 18 cents per share. KBW is cautious into the quarter, saying, "The economy is our chief risk as BofA's consumer-laden book is affected by the unemployment rate. BofA has largely addressed its capital needs, but regulatory risks still exist for BofA. Finally, financial regulation continues to evolve, which could significantly alter our forward estimates and resulting price target."

  • JPMorgan is modeling for EPS of 13 cents, as capital markets related revenue was very weak in the thirdquarter, particularly in trading and investment banking, and down especially sharply in the higher risk areas. JPMorgan says BofA has "relatively attractive valuation, potential for significant appreciation when earnings normalize and position with a leading retail and commercial core franchise in the US. This is partly offset by ongoing headline risk from mortgage related issues, pressure on revenues from consumer related sources given recent slowdown in US economy, uncertain political and regulatory environment, weak and volatile trading environment, and decline in capital markets volumes."

  • Wells Fargo sees earnings of 29 cents per share. "We believe that Q3's results will benefit from divestitures announced during the quarter, most notably the firm's sale of 51 percent of its CCB stake, which is expected to generate $8.3 billion in cash proceeds and an after-tax gain on sale of $3.3 billion (or $0.32), but is likely to be partially offset by a $1.2 billion loss on the sale of its stake in HCA and continued (but sharply lower) elevated mortgage-related costs."

    Investment banking fees are expected to be 49 percent sequentially due to a "broad-based plunge in deal completions, most notable in ECM due to turbulent market conditions."
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out BofA's past performance at Streetinsider's BofA Income Statement .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: BAC , C , JPM , WFC

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