On May 21, 2014, we issued an updated research report on Bank of America Corporation (BAC). The detection of an accounting error, which resulted in a downward revision of capital ratios as well as suspension of BofA’s enhanced capital deployment plans, makes us apprehensive. Further, the company recorded loss in the first quarter compared to the Zacks Consensus Estimate of earnings.
BofA’s first-quarter loss of 5 cents per share substantially lagged the Zacks Consensus Estimate of earnings of 5 cents. Litigation expense and related legal reserves previously announced by the company were the main reasons behind such a disappointing outcome. Moreover, lack of top-line improvement, higher provision and an unfavorable expense trend pressurized the bottom line.
Also, deposits re-pricing pressure, lower loan levels and strain from derivative positions have been weighing upon the net interest yield. Further, given the persistent low rate environment, no significant improvement in interest yield is expected over the next several quarters,
Dismal first-quarter results and the subsequent events failed to gain investors and analysts’ confidence on the stock. Hence, over the last 30 days, the analysts are bearish on BofA, leading to a decline in the Zacks Consensus Estimate. For 2014, the Zacks Consensus Estimate fell 5.1% to 93 cents per share, while for 2015 it decreased 1.9% to $1.54 per share.
BofA presently has a Zacks Rank #5 (Strong Sell).
Stocks That Warrant a Look
Some better-ranked major banking stocks include The Bank of New York Mellon Corporation (BK), KeyCorp. (KEY) and State Street Corp. (STT). All these stocks carry a Zacks Rank #3 (Hold).
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