Where could BAC stock be headed?
Bank of America (BAC) has impressed investors with its strong performance both on the sales and earnings fronts in the past several quarters. Growth in the loan portfolio, an increase in deposits, and higher rates drove the bank’s net interest income, and in turn, its overall revenues. Meanwhile, cost reduction, improved efficiency, and share repurchases continue to drive double-digit EPS growth.
However, the lower non-interest income, reflecting a decline in trading revenues has been a drag. Besides Bank of America, Citigroup (C) disappointed on the revenues front and missed analysts’ estimate owing to the decline in the non-interest income. Meanwhile, Goldman Sachs (GS) posted a double-digit decline in revenues, reflecting lower equity underwriting income and a decrease in interest rate products.
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On the contrary, higher loans and deposits, increased rates, and growth in non-interest income drove YoY growth in JPMorgan Chase’s revenues in the first quarter.
We expect Bank of America to continue to benefit from sustained growth in lending and deposits. However, lower non-interest income remains a concern and could limit the upside in the stock. Moreover, heightened competitive activity could pose challenges. Also, the bank’s earnings are expected to benefit from improvement in net interest income, cost reduction, and share repurchases. However, the EPS growth rate is likely to remain low when compared to the prior year due to a tough YoY comparison.