At the sound of the bell Wednesday morning, the three major stock indexes opened higher.
Later in the morning, the Energy Information Administration will issue its weekly report on petroleum inventories. We took a look at this in our Before the Bell report earlier in the morning.
The Bureau of Labor Statistics reports December’s consumer price index (CPI) before markets open on Thursday. The consensus estimate calls for no increase in CPI but a jump of 0.3% in core CPI.
After U.S. markets close Wednesday and before they open on Thursday, KB Home and Taiwan Semiconductor are on deck to report quarterly results.
This episode of earnings season gets underway with a bang before markets open on Friday. Four of the nation’s biggest banks will report quarterly results, along with one major airline, the country’s second-largest health care company and the world’s largest asset management company
Here is a preview of what to expect when the big banks report results Friday morning.
Bank of America
Shares of Bank of America Corp. (NYSE: BAC) have dropped by about 30% over the past 12 months. The good news for the bank and for its peers is that share prices have improved over the past three months. BofA’s stock has posted a three-month gain of more than 11%, thanks to higher interest rates and, recently, more borrowing.
Unlike some of its peers, BofA has not announced a layoff, instead choosing to let positions left open by normal attrition remain unfilled. In a normal year, that amounts to about 8% of the bank’s workforce. High interest rates will help fill the void left by lower investment banking activity but will not completely close the gap.
Analysts are moderately bullish on BofA, with 14 of 27 having a Buy or Strong Buy rating. The rest rate the stock at Hold. At a recent share price of around $34.10, the implied gain based on a median price target of $40.00 is 17.3%. At the high price target of $52.00, the implied upside is about 52.5%.
Fourth-quarter revenue is forecast at $24.22 billion, which would be down 1.1% sequentially but up by 8.9% year over year. Adjusted earnings per share (EPS) are expected to come in at $0.77, down 5.1% sequentially and by 6.1% year over year. For the full 2022 fiscal year, analysts forecast EPS of $3.14, down 12%, on revenue of $94.75 billion, up about 6.3%.
BofA’s stock trades at 10.9 times expected 2022 EPS, 9.5 times estimated 2023 earnings of $3.60 and 8.9 times estimated 2024 earnings of $3.84 per share. The stock’s 52-week trading range is $29.48 to $50.11. The low was posted Wednesday. BofA pays an annual dividend of $0.88 (yield of 2.56%). Total shareholder return for the past 12 months was negative 28.6%.
Bank of New York Mellon
Bank of New York Mellon Corp. (NYSE: BK) has dropped more than 13% from its share price over the past 12 months. Like BofA, the bank posted a new 52-week low in early October. The stock price has jumped by more than 22% since then.
Unlike its peers, BNY Mellon is expected to post a year-over-year increase in fourth-quarter EPS. And also like BofA, higher interest rates and more lending are giving the bank a bit of a tailwind. On Tuesday, First Republic Bank announced that it had hired all seven members of the Bank of New York wealth management team that reportedly generated $11 million in annual revenue by managing some $1.8 billion in client assets.
Of the 17 analysts covering the stock, 10 have a Buy or Strong Buy rating and six rate it at Hold. The median price target is $52.00, and at a recent price of around $48.00, the upside potential is around 8.3%. At the high target of $64.00, the potential upside is 33%.
Fourth-quarter revenue is forecast at $4.12 billion, down 3.6% sequentially and up by 2.7% year over year. Adjusted EPS are expected to come in at $1.24, up 2.6% sequentially and by 19.2% year over year. For the full 2022 fiscal year, analysts forecast EPS of $4.46, up 6.7%, on revenue of $16.56 billion, up 4%.
The bank’s stock trades at 10.8 times expected 2022 EPS, 10.1 times estimated 2023 earnings of $4.77 and 9.3 times estimated 2024 earnings of $5.14 per share. The stock’s 52-week range is $36.22 to $64.63. BNY Mellon pays an annual dividend of $1.48 (yield of 3.25%). Total shareholder return for the past 12 months was negative 21.1%.
Shares of Citigroup Inc. (NYSE: C) have dropped by 27% over the past 12 months. The stock posted its 52-week in early October, and since then, the shares have added nearly 16%.
Like the other big banks, Citi has been dealing with inflation, recession fears, and, at best, an economic slowdown. Investment banking, a particular emphasis of CEO Jane Fraser, was abysmal in 2022, and prospects for 2023 are not bright. Citi and its peers are likely to have salted away $5.7 billion in loan loss reserves during the quarter. That would mark the fourth consecutive quarter of increased loan loss provisions for the country’s biggest banks.
Of 25 brokerages covering the company, nine have a Buy or Strong Buy rating and 15 have Hold ratings. At a share price of around $48.20, the upside potential based on a median price target of $52.00 is 7.9%. At the high price target of $87.00, the upside potential is about 80.5%.
Fourth-quarter revenue is forecast at $17.39 billion, down 6.1% sequentially and 2.2% lower year over year. Adjusted EPS are forecast at $1.19, down 27.2% sequentially and by 18.5% year over year. For the full 2022 fiscal year, analysts are forecasting EPS of $7.02, down 30.8%, on revenue of $75.26 billion, up 4.7%.
Citigroup stock trades at 6.9 times expected 2022 EPS, 7.3 times estimated 2023 earnings of $6.64 and 6.8 times estimated 2024 earnings of $7.12. The stock’s 52-week range is $40.01 to $69.11, and Citi pays an annual dividend of $2.04 (yield of 4.36%). Its total return to shareholders for the past year was negative 24.1%.
The largest (by market cap) of the big U.S. banks, JPMorgan Chase & Co. (NYSE: JPM), has seen a share price decline of about 17.2% over the past 12 months. Like the other big banks, JPMorgan posted its 52-week low on Tuesday, but since then, the stock has added 32%.
CEO Jamie Dimon has walked back his comments made last June of an impending economic “hurricane,” saying he meant that the storm of interest rate hikes, Federal Reserve tightening and a weak equities market have already arrived and the economy is still standing, though its direction remains cloudy. Unlike its peers, JPMorgan continues to hire, even including a food editor who would have a $30,000 budget to eat at restaurants in addition to a starting salary of up to $130,000. Where do we sign?
Of 27 analysts covering the stock, 17 have a Buy or Strong Buy rating while the other 10 rate the shares at Hold. At a trading price of around $138.70, the upside potential based on the median price target of $150.00 is 8.1%. At the high price target of $189.00, the upside potential is 36.3%.
Analysts expect JPMorgan to report third-quarter revenue of $34.23 billion, up by 4.6% sequentially and 17.0% higher year over year. Adjusted EPS are forecast at $3.10, up 4.6% sequentially but 6.9% lower year over year. For the full 2022 fiscal year, current estimates call for EPS of $11.60, down 24.2%, on revenue of $128.9 billion, up 6%.
JPMorgan stock trades at 11.9 times expected 2022 EPS, 10.9 times estimated 2023 earnings of $12.76 and 10.2 times estimated 2024 earnings of $13.62. The stock’s 52-week range is $101.28 to $169.81. JPMorgan pays an annual dividend of $4.00 (yield of 2.96%). Total shareholder return for the past 12 months was negative 14.5%.
Wells Fargo & Co. (NYSE: WFC) is the nation’s third-largest bank (measured by market cap), and its share price has dipped by more than 23% over the past 12 months. Over the past three months, the stock has added about 2.6%, the smallest increase among the nation’s large banks.
The bank said on Tuesday that it will reduce its exposure to the mortgage market by focusing on loans for existing customers, closing down its third-party loan purchases and shrinking its servicing business. These moves will cost many employees their jobs, but Wells Fargo did not give a number.
Analysts remain bullish about Wells Fargo. Of 26 brokerages covering the bank, five have a Hold rating and 21 have Buy or Strong Buy ratings. At a share price of around $42.60, the upside potential based on a median price target of $53.50 is 25.6%. At the high price target of $64.00, the upside potential is about 50.2%.
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