Bank of America Corp (BAC) is slated to release fourth-quarter and full-year 2013 results tomorrow, Jan 15, before the opening bell.
In the third quarter, BofA delivered an earnings surprise of 11.1% aided by substantial reduction in the provision for credit losses and lower non-interest expenses. The banking bellwether returned to profitability in 2010 and has been performing decently since then.
Will BofA manage to maintain its earnings streak this quarter or should we expect a digression? Let us see how things have shaped up for this announcement.
Bank of America Corp (NYSE:BAC) Factors to Affect Q4 Results
Apart from the company specific parameters (particularly legal expenses), the overall market condition will play a major role in driving BofA’s results in the fourth quarter. On the company’s front, the efforts to realign and improve its balance sheet remain commendable. Further, it continues to manage its capital ratios efficiently, so meeting higher regulatory requirements should not be a concern.
In the present sluggish economic scenario which has limited scope for top-line growth, BofA has been executing initiatives to contain costs and improve credit quality. These measures will support earnings this quarter. Additionally, we expect improvement in capital market activities to result in a solid investment banking performance for Bank of America Corp (NYSE:BAC).
However, we anticipate the company to come out with a decline in the top line, lower mortgage business, tepid loan growth and increased legal expense in the quarter. The legal expenses for this quarter include the mortgage settlement deal with Freddie Mac worth nearly $391 million.
On the macroeconomic level, the near zero interest rate scenario will continue to keep the interest income and margins under pressure. A little tightening up of the Federal Reserve’s quantitative easing will not be sufficient to push the interest rates up.
Further, the jobs report for the month of December did not reflect a very optimistic scenario. So the chance of any further tapering of the quantitative easing (QE) looks dim in the near term.
Similar to the third quarter, this banking giant failed to impress analysts with its extent of activities. As a result, the Zacks Consensus Estimate for the quarter remained stable at 27 cents per share over the last 7 days.
Bank of America Corp (NYSE:BAC Earnings Whispers
Our proven model does not conclusively show BofA as likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Negative Zacks ESP: The Earnings ESP for BofA is -7.41%. This is because the Most Accurate estimate stands at 25 cents while the Zacks Consensus Estimate is higher at 27 cents.
Zacks Rank: BofA’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks to Consider
Here are a few major bank 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.
Fifth Third Bancorp (FITB) has an earnings ESP of +2.38% and carries a Zacks Rank #2. It is scheduled to report fourth-quarter results on Jan 23.
The earnings ESP for M&T Bank Corp. (MTB) is +3.85% and it carries a Zacks Rank #3. The company is expected to release fourth-quarter results on Jan 17.
SunTrust Banks, Inc. (STI) has an earnings ESP of +1.43% and carries a Zacks Rank #3. It is scheduled to report fourth-quarter results on Jan 17.