Bank of America Corp.
) is slated to release first-quarter results tomorrow, Apr 16,
before the opening bell.
In the fourth quarter, BofA delivered an earnings surprise of
11.54% aided by substantial reduction in the provision for credit
losses, top-line growth and lower non-interest expenses. The
banking bellwether returned to profitability in 2010 and has been
performing decently since then.
Will BofA manage to maintain its earnings streak this quarter or
should we expect a digression? Let us see how things have shaped
up for this announcement.
Factors to Affect Q1 Results
The overall market condition was sluggish during the first
quarter of 2014. Moreover, following impressive recovery in the
last few quarters, the equity market seems to have somewhat
slowed down as reflected in softer trading volumes this quarter.
Therefore, in the present low interest rate scenario, we do not
expect BofA to report a remarkable improvement in interest
income. Moreover, the company is likely to report a subdued fee
income also primarily due to sluggish mortgage as well as
Nevertheless, the company's efforts to realign and improve its
balance sheet are commendable. Moreover, BofA's 2014 capital plan
was approved by the Federal Reserve following the Comprehensive
Capital Analysis and Review (CCAR), thereby reflecting the
company's strong capital position.
Further, BofA's cost containment measures seem impressive as
well. The company adopted various cost containment measures which
included layoffs and closure of unprofitable/non-core units
during the quarter. However, the effect of the same will be felt
only sometime later.
Further, in March, the company announced a $9.3 billion mortgage
settlement deal with the Federal Housing Finance Agency (FHFA).
The deal increased BofA's legal woes and is expected to lower the
company's first-quarter earning per share by 21 cents.
Moreover, fresh probes related to faulty mortgage lending
practices in the pre-crisis period may have prompted BofA to
increase its reserves during the quarter. Therefore, legal
expenses as well as increasing reserves to meet the same will
likely pressure BofA's earnings this quarter.
However, we should not forget that despite large reserves kept
aside to meet its legal expenses, BofA managed to deliver
positive surprises in three out of the trailing four quarters
with an average beat of 20.5%. Moreover, the company's efficiency
initiative - Project New BAC - remains in place and will
partially aid in neutralize rising legal expenses.
BofA's activities during the quarter failed to gain analysts'
confidence. As a result, the Zacks Consensus Estimate for the
quarter remained flat at 5 cents per share over the last 7 days.
Our proven model does not conclusively show BofA as likely to
beat the Zacks Consensus Estimate in the fourth quarter. That is
because a stock needs to have both a positive Earnings ESP and a
Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for
this to happen. This is not the case here as you will see below.
The Earnings ESP for BofA is 0.00%. This is because
the Most Accurate estimate as well as the Zacks Consensus
Estimate stands at 5 cents.
BofA's Zacks Rank #4 (Sell) decreases the predictive power of
ESP. This is because a Zacks Rank #4, together with a 0.00% ESP
lowers the chances of a positive surprise.
Stocks to Consider
Here are a few banking stocks that you may want to consider, as
our model shows that these have the right combination of elements
to post an earnings beat this quarter.
) has an earnings ESP of +6.82% and a Zacks Rank #2. It is
scheduled to report first-quarter results on Apr 24.
The PNC Financial Services Group, Inc.
) has an earnings ESP of +2.41% and a Zacks Rank #3. It is
scheduled to report first-quarter results on Apr 16.
First Horizon National Corp.
) has an earnings ESP of +6.67% and a Zacks Rank #3. It is
scheduled to report first-quarter results on Apr 17.
BANK OF AMER CP (BAC): Free Stock Analysis
BANKUNITED INC (BKU): Free Stock Analysis
FIRST HRZN NATL (FHN): Free Stock Analysis
PNC FINL SVC CP (PNC): Free Stock Analysis
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