Markets
BAC

Why Is Bank of America (BAC) Up 8.6% Since the Last Earnings Report?

A generic image of a pen and on top of a chart.
Credit: Shutterstock photo

It has been about a month since the last earnings report for Bank of America CorporationBAC . Shares have added about 8.6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

BofA Tops Q4 Earnings as Trading Improves, Costs Dip

Rise in trading revenues as well as mortgage banking fees drove Bank of America's fourth-quarter 2016 earnings of $0.40 per share, which surpassed the Zacks Consensus Estimate of $0.38. Further, the figure was 48% higher than the prior-year quarter.

Impressive growth in fixed income trading revenues, rebound in equity trading and significant rise in mortgage banking income supported revenues. However, as expected, investment banking fees declined due to lower advisory fees and equity underwriting fees.

Also, provision for credit losses recorded a fall as the energy sector concerns seem to be over. Further, absence of legal costs and efficient expense management were sufficient to aid the bottom line.

Also, the overall performance of the company's business segments, in terms of net income generation, was decent. All segments witnessed improvement in net income.

Revenue Growth Supported Results

Net revenue amounted to $20.2 billion, up 2% from the prior-year quarter. However, the top line lagged the Zacks Consensus Estimate of $20.6 billion.

Net interest income, on a fully taxable-equivalent basis, grew 6% year over year to $10.5 billion. Further, net interest yield rose 9 basis points (bps) year over year to 2.23%. However, non-interest income declined 2% year over year to $9.7 billion.

Non-interest expense was $13.2 billion, decreasing 6% year over year.

Improvement in Credit Quality

As of Dec 31, 2016, ratio of nonperforming loans, leases and foreclosed properties was 0.97%, down 21 bps year over year. Further, net charge-offs plunged 23% from the year-ago quarter to $880 million.

Also, provision for credit losses fell 4% year over year to $774 million, reflecting improved credit quality in commercial portfolio, mainly energy.

Strong Capital Position

The company's book value per share as of Dec 31, 2016 was $24.04, compared with $22.53 as of Dec 31, 2015. Tangible book value per share as of Dec 31, 2016 was $16.95, up from $15.62 as of Dec 31, 2015.

As of Dec 31, 2016, the company's common equity tier 1 capital ratio (Basel 3 Transition) was 11.0%.

Outlook

Management expects net interest income (NII) to increase $600 million in first-quarter 2017 despite two less days in the quarter. This is based on assumptions that the interest rates will remain at the current levels as well as loans and deposits will continue to grow at a modest pace.

Further, the company anticipates rise in NII to continue in 2017 on the expectations of marginal loan and deposit growth and stable short-term and long-term interest rates.

With quarterly FDIC insurance expense set to rise at the large banks until the deposit insurance fund reaches 1.35%, management expects this to lead to roughly $100 million quarterly increase in expenses, effective third-quarter 2016.

Also, similar to the past years, management expects to incur nearly $1.3 billion for retirement eligible incentives and seasonally elevated payroll tax expense. Further, in case of a normal seasonal rebound in capital markets based activity, the company will record related increase in expenses.

Notably, the company remains on track to reach nearly $53 billion expense target by 2018.

For 2017, tax rate is expected to be 31%.

Management anticipates auto loan growth in the first two quarters of 2017 to be approximately in the mid-to-low single-digits range, based on modestly improving economy.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend for fresh estimates. There have been two revisions higher for the current quarter, while looking back an additional 30 days, we can see even more upward momentum. There have been five moves upward revisions compared to one lower two months ago.

Bank of America Corporation Price and Consensus

Bank of America Corporation Price and Consensus | Bank of America Corporation Quote

VGM Scores

At this time, Bank of America's stock has a nice Growth Score of 'B', though it is lagging a bit on the momentum front with a 'C'. Following the exact same course, the stock was allocated also a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, stocks has an aggregte VGM score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

While estimates have been trending upward for the stock, the magnitude of these revisions looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Bank of America Corporation (BAC): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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


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

In This Story

BAC

Other Topics

Earnings

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More