Bank of America Q4 earnings preview: Where next for BAC stock?

When will Bank of America release Q4 earnings?

Bank of America is scheduled to release fourth quarter and full year earnings at 0645 ET on Friday January 13. An investor presentation will be released on the same day at 0930 ET.

That will be on the same day that JPMorgan, Wells Fargo, Citigroup and the Bank of NY Mellon report their results, with Morgan Stanley and Goldman Sachs to follow next week. You can find out what to expect from the industry as a whole and how its rivals could perform in our US Banks Q4 Earnings Preview.

Bank of America Q4 earnings consensus

Wall Street forecasts Bank of America will report a 5.2% year-on-year decline in net income in the fourth quarter to $6.6 billion, with adjusted EPS to fall by the same amount to $0.78, according to consensus numbers from Bloomberg.

Bank of America Q4 earnings preview

The current macro environment is providing both benefits and challenges for major banks. 

Rising interest rates continue to drive the topline higher as it allows banks to earn more money on loans, mortgages and other products. Bank of America’s net interest income is forecast to grow almost 30% from last year to $14.95 billion, although this will be countered by a 12.4% drop in non-interest income to $9.33 billion, driven by lower income from its consumer and global banking units, plus its wealth & asset management arm.

However, rising rates combined with the uncertain economic outlook is making banks wary of a recession and prompting them to write-off more loans and stash more money away in case more people and businesses can’t afford to repay their debts going forward. Loan loss provisions, which covers the amount put aside to cover potentially bad loans, is expected to come in at $1.02 billion. That will be a major drag on the bottom line considering it released $489 million worth of provisions the year before, which flattered its profits. Meanwhile, net charge-offs, representing the amount of debt that is unlikely to be recovered, is expected to soar 77% from last year to $639.6 million.

That, combined with rising costs, with non-interest expenses forecast to rise 4.4% in the fourth quarter, is hurting the bottom line. The result is set to be a 5.2% year-on-year drop in net income and earnings per share in the final three months of 2022. Net income is expected to fall 23% from its global banking arm, by 2.4% from its global markets division and 5.1% from its global wealth and investment management arm. That will be softened by a 5.4% rise from its consumer banking operations.

Notably, costs are rising at a milder rate for Bank of America compared to some of its peers and revenue is continuing to grow at a faster pace, which sets the bank up for positive operating leverage in 2023.

Notably, Bank of America and others are seeing deposits fall as money becomes tighter in the current environment, while demand for loans are growing as customers look to borrow to see them through tougher times. Total deposits are forecast to be 7.3% lower than last year in the fourth quarter, while loans are expected to rise 6.5%.

Importantly, we appear to be past the trough of earnings, which are forecast to return to growth in the first quarter of 2023 and for the remainder of the year. This is because it will be coming up against easier comparatives in terms of provisions. Having inflated earnings by releasing reserves that had been set aside during the pandemic throughout 2021, the bank started building them again and knocking earnings in the first quarter of 2022. That will provide more favourable comparatives going forward considering reserves will continue to rise throughout this year.

Currently, markets believe Bank of America can deliver EPS growth of 14.4% over 2023 as a whole, which would put it in the middle of the pack based on expectations for its rivals. Below is an outline of EPS forecasts for 2023 to show the relative performance across the industry this year:

(Source: Bloomberg consensus)

Where next for BAC stock?

Bank of America has managed to stay in positive territory since the start of the 2023, although the stock has struggled to find higher ground since coming up against the 50-day and 200-day moving averages that have converged around the $35 mark. The fact it has fallen back below the 100-day moving average at $34.15 after briefly recapturing the level this week shows this could also be providing some resistance.

A move above these moving averages would give it the opportunity to break out of the falling trendline that can be traced back to last year and emerged as a strong ceiling last November. It can then target the August peak of 2022 at $36.60 before targeting the high seen in the second half of last year at $38.40. The 28 brokers that cover the stock, according to data from Refinitiv, are largely bullish with the average target price of $41.12. That implies the stock can rise over 20% and hit levels that have not been seen since April 2022.

The stock has come close to hitting $33.50 on each of the last four trading sessions before finding some support, suggesting this could emerge as a new floor going forward. Below here, $32 comes back into play before the two-month low of $$31.70 hit in December comes back into play.

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