Bank of America Corp. BAC is slated to release first-quarter 2015 results on Apr 15, before the opening bell.
Last quarter, despite being hit by lower trading income, BofA’s adjusted earnings were able to surpass the Zacks Consensus Estimate. A rise in provision for credit losses and lower revenues (owing to lower mortgage banking income and trading income) were the major headwinds. Nevertheless, a well-controlled expense line partially supported the bottom line.
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 Affecting Q1 Results
With most litigation issues left behind, BofA is predicted to report almost negligible legal charges in the quarter as compared with significant legal expenses incurred in the prior-year quarter. Also, we do not expect the company to take additional legal reserve during the quarter.
BofA’s cost-saving initiatives will continue to support its bottom line. Notably, management anticipates annual retirement eligible incentive costs of nearly $1 billion in the quarter (in line with the preceding few years). Overall, we believe operating expenses will trend lower in the quarter.
Additionally, BofA continues to focus on its core businesses. We believe that driven by a rise in refinancing activities owing to lower mortgage rates during the past three months, mortgage banking income should increase. Further, investment banking revenues will likely witness steady growth, backed by strength in M&A and IPO activities during the quarter. These are expected to support fee income to some extent.
However, we believe that top-line pressure will persist, given low interest rates. Hence, we do not expect any significant improvement in BofA’s interest income in the quarter. Also, management anticipates net interest income to fall $200 million due to two less interest accrual days.
BofA’s activities during the quarter were inadequate to win analysts’ confidence. Consequently, the Zacks Consensus Estimate remained stable at 29 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.
Zacks ESP: The Earnings ESP for BofA is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 29 cents.
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 this quarter.
The Earnings ESP for JPMorgan Chase & Co. JPM is +0.72% and it carries a Zacks Rank #2. The company is slated to release results on Apr 14.
SunTrust Banks, Inc. STI has an Earnings ESP of +1.39% and a Zacks Rank #3. It is scheduled to report on Apr 20.
Fifth Third Bancorp FITB has an Earnings ESP of +2.70% and a Zacks Rank #3. The company will report results on Apr 21.
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