Performance in 2018
Bank of America (BAC) has beat analysts’ estimates for the last six quarters, reflecting the bank’s strong operating performance thanks to credit offtake, interest rate hikes, rising trading activity, and investment banking activity. The bank has outperformed major banking peers (XLF) through investments in technology, geographic expansion, and retail and investment products.
Drivers in 2018
Bank of America is expected to end 2017 with implied EPS (earnings per share) growth of 21.3% to $1.82, due to revenue growth of 5.6%. The revenue growth reflects expanding operating margins due to interest rate hikes and substantial buybacks over the past few quarters. In 2018, growth is expected to slow marginally to 19%, and EPS of $2.17 are expected, largely due to lower credit offtake and trading activity. On the revenue front, Bank of America is expected to see 3.5% growth to $92.5 billion.
In 3Q17, Bank of America beat estimates by $0.02 and posted EPS of $0.48. The 17% growth was due to core banking and advisory fees and partially offset by lower trading revenue. While the bank’s consumer banking, global banking, and wealth management have expanded due to interest rates and new assets under management, its global markets division has fallen due to lower trading activity.
Other major commercial banks have also improved their earnings in recent quarters, thanks to wider margins and higher deposits. JPMorgan Chase (JPM) and Citigroup (C) beat estimates, whereas Wells Fargo (WFC) met estimates in 3Q17.
Return on equity
Bank of America generated a 0.98% return on assets and an 8.1% return on equity. However, its book value fell 1% on a one-time conversion of preferred stocks by Berkshire Hathaway (BRK.B). In this series, we’ll study Bank of America’s performance, future investments, divisions, yields, expected growth, valuation, dividends, and analyst ratings.