Bank of America (NYSE:BAC) recently rolled out its earnings report, and while the news was at least fairly good, the end result was much less so as the company lost nearly 3% in pre-market trading. Is there an opportunity lurking in the walls of an American bank so big it bears America's own name? Or is it time to consider other opportunities in the field instead?
A Shaky Deposit Slip for Bank of America
The good news for Bank of America is that the numbers turned out reasonably well, especially given the broader circumstances seen in the market. Quarterly profit came in at $0.51 per share, which was $0.02 cents better than what Wall Street was expecting.
The company brought in $20.45 billion in total revenue, and most businesses would be grateful to see even a tenth of that figure. However, that $20.45 billion wasn't enough to outmatch the Refinitiv consensus, which called for the company to bring in $20.8 billion estimated to come in.
What's worse, income in several key segments was also down. Net interest income slipped 17% from the same time last year, dropping to $10.2 billion. Brian Moynihan, the company's CEO, suggested that that figure was likely to hit its bottom in the third quarter, a sentiment echoed by CFO Paul Donofrio, who looked for a recovery on this front to kick in next year.
Rolling With the Punches From the Federal Reserve
Bank of America is actually regarded as the bank most sensitive to interest rate changes, reports note, and with the Federal Reserve poised to continue a zero-rate policy for the immediate future—possibly extending out even farther than that—the end result is a potential continued drag on Bank of America's overall futures.
Even this is set to be ameliorated somewhat by overall consumer behavior; with the housing market still on a tear and people almost certainly in need of loans on one front or another, more people will likely be turning to their local Bank of America branch coming up. Yet Bank of America is also not sitting on its hands here; the company is moving into investment opportunities of its own, putting its available cash into securities, and focusing on getting better yields to help address the shortfall seen in lending rates.
The Analysts Remain Convinced
Those who see a buying opportunity taking shape on Bank of America, meanwhile, are far from alone. Our latest research on the topic finds that proportions are unchanged from 30 days ago, with a “buy” consensus in place built on the backs of one “sell” rating, seven “hold” ratings, and 14 “buy” ratings. With that kind of weight behind “buy”, it's easy to see why anyone would suggest it. Better yet, the consensus price target is holding at $29.50, which represents a healthy upside potential.
Better yet, analyst sentiment has actually swung around Bank of America's way in recent weeks. The ratings from September forward are all positive; Deutsche Bank Aktiengesellschaft upgraded from “hold” to “buy” back in early September, and JPMorgan Chase & Co. just upped its price target to $27.50 about a week ago.
Don't Sign That Withdrawal Slip Just Yet
It's actually a safe bet at this point to consider the recent decline in Bank of America's share price to be a buying opportunity. While the earnings report wasn't exactly a ball of fire, and it's a safe bet that the Fed will be sticking to a zero-rate policy for the next couple of years, Bank of America is demonstrating that it's not just sitting back and taking what the Fed dishes out. The move in securities is a smart one, as there's yield to be had for those who know where to look. Bank of America likely knows where to look much better than many do, and it's likely got the cash on hand to make those moves appropriately.
Consumer spending gains have been also seen, and this in the comparatively-sluggish third quarter. Going into the fourth quarter, and the Christmas shopping season, suggests new gains to come and new loans likely to be called for on both the consumer side and the supply side as businesses look to meet demand.
So yes, the earnings report for this quarter was not the greatest. The company barely beat one set of estimates and completely lost out on another. The Fed likely won't budge on its current policies. With a big spending season now playing in some places and an improving overall consumer sentiment, it's safe to look for a little extra push behind loan movement at Bank of America, and the CFO's confident outlook should prove far from misplaced. The second quarter was a calamity for almost everybody. The third quarter, a beginning to recovery. The fourth quarter, and beyond, will likely tell a different story.
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