The fear investors once had regarding a potential global growth slowdown, which caused a slump in financial stocks towards the end of 2018, has seemingly been forgotten. That, and concerns surrounding the slower pace of rising interest rates has given way to increased optimism.
Bank of America (BAC), which saw its stock lose 17% of its value in 2018, compared to a 6% decline for the S&P 500 index, will report first quarter fiscal 2019 results Tuesday before the opening bell.
Last week, JPMorgan Chase (JPM) CEO Jamie Dimon insisted the stock market rally “can go on for years.” On the heels of JPMorgan’s strong quarterly results, Dimon painted a rosier-then-expected outlook for the economy, saying “the consumer is in good shape, balance sheets are in good shape, people are going back to the workforce, companies have plenty of capital.”
Can Bank of America follow suit? While it has beaten Wall Street’s earnings estimates in ten straight quarters, on Tuesday it must demonstrate stronger growth numbers in key areas of the business to support Dimon's optimism about the state of banking. Specifically, with loan and deposit growth being among the major objectives investors are hoping will impress Wall Street. BAC stock has been rewarded handsomely, gaining 22% year to date, suggesting expectations are high from BofA investors.
Analysts will want to see to what extent can BofA's investment banking support top-line growth and sustainable profits. For the three months that ended March, analysts expect the Bank of America to earn 65 cents per share on revenue of $23.3 billion. This compares to the year-ago quarter when earning were 62 cents per share on revenue of $23.27 billion. For the full year, earnings are projected to rise 9.5% year over year to $2.87 per share, while full-year revenue of $93.69 billion would rise 2% year over year.
In the fourth quarter, the bank — which has worked diligently to cut expenses — amassed its fifteenth straight quarter during which it has improved operating leverage. By reducing the number of branches and consolidating technology like data centers, Bank of America’s quarterly profit tripled to a record of $7.3 billion. The bank benefited from a combination of factors, namely a strong revenue from its consumer banking business, which grew by 52% year over year to $3.3 billion.
Elsewhere, Q4 loans grew 2%, while credit and debit card spending grew by 6%. The bank’s net interest income — a widely followed measure of profitability for banks — reached 2.48%, topping Street expectation for 2.45% rise. These collective metrics demonstrates the extent to which Bank of America’s operational focus, which allowed it to buy back $26 billion in common stock, are working.
On Tuesday investors will want to see these trends continue, while listening intently for any commentary that supports Dimon’s positive statements regarding the state of the U.S. economy. From a valuation perspective, the stock is attractive, trading at P/E ratio of 11 and offers a dividend yield of 2.08%, compared to a 2.00% yield for the average stock in the S&P 500 index.