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Bank of America (BAC) Up 10.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Bank of America (BAC). Shares have added about 10.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Bank of America 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 catalysts.

Bank of America's Q1 Earnings Beat on Strength in IB and Trading

Bank of America’s first-quarter 2024 adjusted earnings of 83 cents per share outpaced the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with the 94 cents earned in the prior-year quarter. After considering the FDIC special assessment charge of $700 million, earnings per share was 76 cents.

Despite modest loan growth (loan balances rose 0.3% from the prior-year period) and high interest rates, BofA recorded a decline in net interest income because of higher deposit costs.

Nevertheless, BofA witnessed a 1.9% increase in total deposit balances at the end of the quarter.

Also, total IB fees (in the Global Banking division) of $850 million increased 27.2% year over year, driven primarily by growth in underwriting income (up more than 50% year over year). Advisory services revenues witnessed a decent increase in the quarter.

Similar to the second, third and fourth quarters of 2023, BofA recorded an improvement in trading numbers in first-quarter 2024. Sales and trading revenues (excluding net DVA) were up 2.5% from the prior-year quarter to $5.18 billion. Fixed-income trading fees declined 3.6%, while equity trading income jumped 15.1%.

Overall, the company’s net income applicable to common shareholders plunged 19.8% from the prior-year quarter to $6.14 billion. Our estimate for the same was $6.15 billion and did not take into account non-recurring items reported in the quarter.

Revenues Decline, Expenses Rise

Net revenues were $25.82 billion, which beat the Zacks Consensus Estimate of $25.28 billion. However, the top line declined 1.7% from the prior-year quarter.

NII (fully taxable-equivalent basis) fell 2.7% year over year to $14.19 billion. Our estimate for NII was $14.09 billion. Net interest yield contracted 21 basis points (bps) to 1.99%.

Non-interest income decreased marginally from the prior-year quarter to $11.79 billion. The decline was mainly due to a fall in fees from market-making and similar activities. We had projected non-interest income of $11.22 billion.

Non-interest expenses were $17.24 billion, up 6.2% year over year. Our estimate for non-interest expenses was $16.40 billion.

The efficiency ratio was 66.77%, up from 61.84% in the year-ago quarter. An increase in the efficiency ratio indicates a deterioration in profitability.

Credit Quality Worsens

Provision for credit losses was $1.32 billion, up 41.7% from the prior-year quarter. Net charge-offs jumped 86% year over year to $1.50 billion. As of Mar 31, 2024, non-performing loans and leases as a percentage of total loans were 0.56%, up 18 bps year over year.

Capital Position Strong

Book value per share as of Mar 31, 2024, was $33.71 compared with $31.58 a year ago. Tangible book value per share as of the first-quarter end was $24.79, up from $22.78.

At the end of March 2023, the common equity tier 1 capital ratio (advanced approach) was 13.4%, up from 12.9% as of Mar 31, 2023.

Capital Distribution Update

In the reported quarter, the company returned $4.4 billion to shareholders in dividends and share repurchases.

Outlook

The company expects low single-digit loan growth along with moderate growth in deposits as it moves into the back half of 2024.

The company expects second-quarter 2024 NII to decline modestly from the first quarter and approach $14 billion on an FTE basis. In the third and fourth quarters of the year, NII is expected to grow.

In the second quarter of 2024, the company expects expenses to decline sequentially as nearly two-thirds of the first-quarter elevated payroll tax expenses come back out. In the remainder of the year, expenses are expected to trend further down.

Management expects CRE losses to move lower in the second quarter compared with the first quarter of 2024.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Bank of America has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Bank of America is part of the Zacks Banks - Major Regional industry. Over the past month, Wells Fargo (WFC), a stock from the same industry, has gained 9%. The company reported its results for the quarter ended March 2024 more than a month ago.

Wells Fargo reported revenues of $20.86 billion in the last reported quarter, representing a year-over-year change of +0.7%. EPS of $1.26 for the same period compares with $1.23 a year ago.

Wells Fargo is expected to post earnings of $1.25 per share for the current quarter, representing no change from the year-ago quarter. Over the last 30 days, the Zacks Consensus Estimate has changed +0.7%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Wells Fargo. Also, the stock has a VGM Score of F.

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