Bank of America Corp. is scheduled to report fourth-quarter results on Friday, before the market opens, as the banking giant attempts to stretch its streak of earnings beats to seven quarters.
The results will come amid hopes of the dawning of a Goldilocks age for the banking industry, with President-elect Donald Trump promising reduced regulations, lower corporate taxes and fiscal stimulus, which could lead to higher interest rates.
Continued increases in oil and other commodity prices during the fourth quarter should have also provided a boost to Bank of America’s BAC, +0.57% results, as TD Securities said that has provided for further stabilization in the credit quality of banks’ oil and gas exposures, and for a more upbeat credit outlook.
The recent volatility in financial markets could also help boost the bank’s bottom line, as strength in its trading business helped buoy third-quarter results.
Here are some things to watch for:
Earnings: BofA is expected to report earnings per share of 38 cents for the quarter ended Dec. 31, according to the average estimate of 27 analysts compiled by FactSet, up from 28 cents in the same period a year ago. The FactSet EPS consensus has increased from 36 cents at the end of the third quarter.
The consensus from Estimize, which surveys sell-side analysts like FactSet does, but also hedge-fund executives, brokerages and buy-side analysts, is for EPS of 40 cents.
The last time the bank missed the FactSet EPS consensus was the first quarter of 2015.
Revenue: Total revenue is expected to come in at $ 20.82 billion, according to FactSet, up from $ 19.53 billion a year ago, and compared with expectations of $ 20.57 billion at the start of the quarter. The Estimize consensus is for revenue of $ 20.89 billion
BofA’s revenue beat the FactSet consensus the previous two quarters, after missing for two straight quarters before that.
Net interest income, which is the revenue generated from assets — such as loans, minus the costs from its liabilities, such as customer deposits — and which can get a boost from a rising interest-rate environment, is expected to rise to $ 10.45 billion from $ 9.80 billion a year ago, according to FactSet.
Expectations have increased since the quarter started, as the yield on the 10-year Treasury TMUBMUSD10Y, -2.06% rocketed 83.8 basis points (0.838 percentage points) during the quarter, the biggest quarterly surge since the first quarter of 1994. Meanwhile, the average rate on 30-year fixed-rate mortgages increased 74 basis point, according to Freddie Mac.
Stock price: BofA’s stock has gained the day of its last three quarterly reports, by an average of 2.0%.
Options traders are currently pricing in a one-day post-results move in the stock, up for down, of 3.1%, which is above the average move of 2.6% over the past five years.
The shares have run up 47% since the end of the third quarter through Wednesday, propelled by a 36% surge since the election. Meanwhile, the SPDR Financial Select Sector exchange-traded fund XLF, +0.64% has rallied 18% since the election and the S&P 500 index SPX, +0.28% has climbed 6.3%.
The average stock rating of 34 analysts surveyed by FactSet is the equivalent of overweight, while the average stock price target of $ 23.66 is 2.6% above current levels.
The average daily volume in the stock over the past 30 days has been 111.6 million shares, about double that of Chesapeake Energy Corp. CHK, +0.00% the second-most-active stock in the S&P 500, with an average of 55.3 million shares a day.
Other issues: In December, Chief Executive Brian Moynihan boasted at a financial services conference about how expenses, excluding litigation, were on track to decline for a sixth straight year, while liquidity has strengthened.
At that time, expenses excluding litigation over the past 12 months had been $ 54.5 billion, with expectations of further declines to $ 53 billion by the end of 2017. Moynihan also said the bank had over $ 500 billion of liquidity, meaning it could go 38 months without funding in the market. Investors should watch for any change to those numbers.
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“[Bank of America’s] normalized earnings should benefit from cost cuts and interest-rate hikes, plus any loosening of regulations,” said analyst Vivek Juneja at J.P. Morgan, who reiterated his overweight rating ahead of BofA’s results.
Among other key financial metrics Bank of America is expected to report, according to FactSet, that investors may want to keep an eye out for:
• Provision for credit losses: $ 948.9 million.
• Tangible book value per share: $ 17.27.
• Non-interest income: $ 10.37 billion.
• Loans at the end of the period: $ 910.52 billion.
• Deposits at the end of the period: $ 1.322.10 billion.