Banking & Finance

Earnings Preview: Bank of America, Citigroup, Morgan Stanley, US Bank, Wells Fargo

U.S. equity markets got off to a slow start this week, with the S&P 500 and the Dow Jones industrials both closing essentially flat Monday and the Nasdaq up by about 0.2%. While the country’s big banks are hardly a bellwether for the economy, how they performed in the third quarter and how they think they will perform in the fourth quarter will trickle down through other market sectors.

That trickle begins as a flood Thursday morning, when five of the nation’s largest banks report quarterly earnings. Here’s a look at what analysts are expecting.

Bank of America

Bank of America Corp. (NYSE: BAC) is the nation’s second-largest bank by market cap, and it has enjoyed a share price boost of 76% over the past 12 months. Revenues in the first half of the year got a boost when the Federal Reserve allowed it and the other big banks to reduce their loan loss provisions. Some of that cash was used to pay dividends, but some was also used to meet rising expenses. Higher pay to keep and attract staff and investments in technology added to operating costs, and the big question is whether revenues will have been able to keep pace with those higher costs.

Analysts are bullish on BofA, with 16 of 26 putting a Buy or Strong Buy rating on the shares. Another eight rate the stock at Hold. At a recent price of around $43.80, the implied gain based on a median price target of $45 is about 2.7%. At the high price target of $52, the implied upside is 18.7%.

Third-quarter revenue is forecast at $21.6 billion, which would be up by less than 1% sequentially and 5.6% higher year over year. Adjusted earnings per share (EPS) are expected to come in at $0.70, or a drop of 32% sequentially but up 37.3% year over year. For the full fiscal year, analysts currently forecast EPS of $3.20, up 71.3%, on revenue of $87.56 billion, about 1.8% higher.

BofA’s stock trades at 13.8 times expected 2021 EPS, 14.6 times estimated 2022 earnings and 12.9 times estimated 2023 earnings. The stock’s 52-week trading range is $23.12 to $44.87. It pays an annual dividend of $0.84 (yield of 1.89%).

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