Bank stocks have outperformed the broader S&P 500 Index in the first few trading weeks of the new year, driven by the prospect of rising interest rates. Among the group, Bank of America (BAC) stock has been a hot commodity, rising some 10% over the past thirty days and 22% over the past six months.
With the stock now up 10% year to date, besting the 2% decline in the S&P 500 index, the market seemingly expects strong results from Bank of America in 2022. But can the bank deliver? The money center bank is set to report fourth quarter fiscal 2021 earnings results before the opening bell Wednesday. Bank of America has beaten earnings estimates in ten straight quarters driven by strong execution. The bank’s focus on consumers and lending has been key to its success.
In the quarters ahead, among other tailwinds, the bank should benefit from potentially three interest rate increases in 2022 which should boost its net interest margins and help drive earnings per share above pre-Covid levels. In addition to cost efficiency and capital return capacity, on Wednesday investors will want to see these positive trends continue, specifically within loan and deposit growth. Analysts will also look to gauge how other parts of the business such as investment banking can support top-line growth and profits.
For the three months that ended December, analysts expect the Bank of America to earn 77 cents per share on revenue of $22.36 billion. This compares to the year-ago quarter when earning were 59 cents per share on revenue of $20.21 billion. For the full year, earnings are projected to rise 87% year over year to $3.50 per share, while full-year revenue of $89.63 billion would rise 4.2% year over year.
The company’s close-to 90% projected rise in full-year 2021 profits is nothing short of impressive amid a low interest rate environment. The bank has also grown its bottom line by two-fold on a year-over-year basis in the first three quarters of 2021. Bank of America has achieved this feat by doing an exceptional job in driving down cost as a way to offset high inflation and downbeat volume growth. The bank extended its streak of quarters during which it has improved operating leverage by reducing the number of branches and consolidating technology like data centers.
One of the key strategies have been its digital transformation and leveraging its massive scale. In the third quarter, Bank of America delivered a beat on both the top and bottom lines as all four of the bank’s four main segments reported revenue growth. Adjusted EPS of 85 cents per share beat consensus estimates by 15 cents, while Q3 revenue of $22.77 billion surpassed estimated by about $1.16 billion, driven by its global banking business.
During the quarter, both revenue and net income grew on sequential basis and year over year in Consumer Banking, Global Wealth and Investment Management and Global Banking. This was the bank’s second straight quarter of increasing deposits and loan balances, which drove an improvement in net interest income despite low interest rates.
All told, you would be hard-pressed to find a better-managed bank. Nevertheless, on Wednesday Bank of America will need to show whether it can sustain this momentum, specifically with loan and deposit growth. And while the stock is no longer in the bargain bin, Bank of America will continue to outperform.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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