Will BofA (BAC) Miss Q4 Earnings Despite Lower Expenses? - Analyst Blog

Bank of America Corp. ( BAC ) is slated to release fourth-quarter and full year 2014 results on Jan 15, before the opening bell.

Last quarter, BofA was able to put an end to the concerns regarding its huge settlement with regulators. Adjusted earnings significantly outpaced the Zacks Consensus Estimate of loss. A well-controlled expense line (excluding litigation costs) and better-than-expected top line were, however, partially offset by higher provision for credit losses.

Will BofA be able to sustain its profitability this quarter? Or will it disappoint? Let us see how things have shaped up for this announcement.

Factors Impacting Q4 Results

Though overall economic environment improved in the quarter, we believe that top-line pressure will persist, given the low interest rates. Hence, we do not expect any significant improvement in BofA's interest income in the quarter.

Further, BofA provided a weak forecast for trading revenues in the quarter. The company expects sales & trading revenues to fall below the prior-quarter as well as the year-ago quarter levels.

Also, demand for fresh mortgages remained subdued with feeble mortgage activity, owing to continued uncertainty over interest rates. Hence, growth in mortgage revenues is also not expected. However, investment banking will likely support fee income to some extent, driven by continued strength in M&A and IPO activities during the quarter.

Also, BofA's efforts to strengthen its balance sheet and curtail costs remain commendable. The company has been consolidating branches, retrenching workers and closing/selling unprofitable businesses. As a result, operating expenses would continue to decline during the quarter.

Nevertheless, BofA's activities during the quarter were inadequate to win analysts' confidence. Consequently, the Zacks Consensus Estimate declined nearly 3% to 32 cents per share over the last 7 days.

Earnings Whispers

Our proven model shows that BofA is likely to miss the Zacks Consensus Estimate in the upcoming release. 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.

Negative Zacks ESP: The Earnings ESP for BofA is -3.13%. This is because the Most Accurate estimate stands lower than the Zacks Consensus Estimate.

Zacks Rank: BofA's Zacks Rank #4 (Sell) further decreases the predictive power of ESP.

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 in the upcoming announcements.

The Earnings ESP for First Republic Bank ( FRC ) is +1.39% and it carries a Zacks Rank #3. The company is slated to release results on Jan 15.

The PNC Financial Services Group, Inc. ( PNC ) has an Earnings ESP of +0.57% and a Zacks Rank #3. It is scheduled to report on Jan 16.

Associated Banc-Corp ( ASB ) has an Earnings ESP of +3.33% and a Zacks Rank #2. The company will report results on Jan 22.

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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.

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