Both JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) reported earnings just the day before Bank of America Corp. (NYSE: BAC). Both banks that already reported seem to have gone in totally opposite directions. Which way will Bank of America go?
Bank of America is scheduled to report its first-quarter financial results on Wednesday before the markets open. Thomson Reuters has consensus estimates of $0.29 in earnings per share (EPS) and revenue of $21.50 billion. In the same period of the previous year, the financial giant reported a net loss of $0.05 per share on $22.77 billion in revenue.
Bank of America has managed to cut its enormous legal costs, but it has depended on other cost cuts to maintain profitability. Trading profits turned to losses last quarter, and that may continue if the latest “cheapest bank stock” analysis remains static. The earnings consensus estimate is well above the losses that the company faced last year, and the good news is that banks are supposed to do far less trading than in years past.
Bank of America is yet another newly added stock to the Credit Suisse Top Picks List. The firm sees the bank emerging as the “new” Bank of America with strong earnings power across the franchise. The analysts also think $2 EPS are not out of the question for this money center giant.
The company is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers and 16,300 ATMs, as well as call centers and online and mobile banking platforms.
So, what will make it more like Wells Fargo or JPMorgan? Wells Fargo posted a solid beat on its earnings, but the stock dropped in trading shortly after the report. This can be attributed to a lower-than-expected tax rate for the first quarter, which ultimately helped boost the numbers, and at the same time net interest income fell almost $200 million. Wells Fargo also trades at a nosebleed premium to book value compared to the rest of the banking giants. JPMorgan came over the top of estimates and is thrashing the competition in the consumer retail banking, putting it on top of this segment for the third year in a row
The Merrill Lynch brokerage continues to be one of the bank’s best assets, and it has contributed heavily to earnings growth. With a continued bull market a solid possibility, the brokerage should continue to be a solid contributor to the top and bottom lines.
The notion that Bank of America is valued at only 11 times 2015 estimated earnings may sound low. That is actually not far off the mark against peers. JPMorgan trades at 11 times expected 2015 earnings, and Wells Fargo trades at almost 13 times earnings. Last quarter, Bank of America’s stated book value was up 3% from the prior year at $21.32 per share, and the tangible book value was up 5% at $14.43.
Tuesday afternoon, shares of Bank of America were down 0.2% at $15.76. The consensus analyst price target is $18.40, and the stock has a 52-week trading range of $14.37 to $18.21.