Beating the estimates would not be a surprise!
Bank of America Corporation will publish its earnings on Friday, January 13, before the US market opens. Based on 11 Zacks Investment Research analysts, the consensus estimate for EPS is $0.79, down from $0.82 in the same quarter last year. BAC has beaten the forecast three times out of the previous four quarters.
The Bloomberg estimate is $0.78 earnings per share, which is 5.2% lower than a year ago. The bank's net income should also ease by 5.2% to $6.6 billion.
On the same day with BAC, we have earnings reports of other central US banks, including JPMorgan, Wells Fargo, Citigroup, and the Bank of NY Mellon. Next week financial institutes' earnings will continue with Morgan Stanley and Goldman Sachs's reports.
While BAC is adding almost 1 million new checking account relationships a year to show its customer retention and satisfaction appear stable, the current financial situation is increasing the uncertainty level and risk of bad loans. Raising the interest rates can be suitable for the banks' net income. However, it also means that the amount of debt that is unlikely to be recovered also increases. For next year, total debts that BAC expecting not to be recovered can rise to $639.6 million, which means 77% more comparing 2022. Due to these risks, BAC's loan loss provisions to cover the bad loans would be about $1.02 billion.
The importance of loan loss provision is that it can decrease the investment power of banks. While BAC's investment in technology continues to increase, up 15% from 2020, if the numbers of bad loans increase or even expectations for that rise, the bank's investment in other sectors will decrease.
As we mentioned in the 2023 annual outlook, US consumers' savings are decreasing, while the higher inflation also reduced saving power in the past months. Therefore, even if we are optimistic about the Q4 earnings, the outlook of the bank in its earnings report for the first quarter and the whole year of 2023 will play an important role.
Since the overall estimates for income and inflation are a negative balance in the first quarter and then growth in the following months, as we are expecting to see inflation decreasing later and the labor market will get better from the second quarter, we can expect that BAC share prices to fall, even if we have the better than expected data, but due to pessimistic outlook for Q1 2023, but it can raise in next quarter. Therefore we can read it as a buying opportunity.
Since we will have the reports of other banks on the same day, a small comparison would be interesting. BAC comparing JP Morgan and Wells Fargo, looks more traditional as they mainly focus on customer relations, loans, bonds, etc. BAC's capital markets segment is smaller in size, comparing JPM, City groups, and WFC. However, less involvement in lower risky assets and business helped the BAC to grow more stable than other major US banks.
From a technical point of view, share price behavior changed above $28. Between 28 and $34 (sitting on a 20 weekly moving average) will be the buy zone for BAC, and 2023's targets could be around $39 and $43, while $50 for the beginning of 2024 could be reachable. Conversely, breaching under $28 can change the outlook and trend, which is less likely.
