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Higher Provisions Weigh on Bank of America’s Q2 Results

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Bank of America (NYSE:BAC) stock fell 3.1% in pre-market trading today after the company reported its second-quarter results. Bank of America reported higher-than-expected second-quarter numbers. As we discussed previously, a significant jump in the provision for credit losses weighed on the bank’s profitability.

Bank of America’s Q2 earnings

In the second quarter, Bank of America reported an adjusted EPS of $0.37 compared to $0.75 in the second quarter of 2019. The earnings beat analysts’ consensus estimate of $0.27 per share. Bank of America generated sales of $22.5 billion—a reduction of 3.4% from the second quarter of 2019. The company beat analysts’ consensus sales estimate of $22.0 billion. The provision for credit losses rose to $5.1 billion—up about $4.0 billion from the same quarter the previous year.

In the second-quarter earnings release, Bank of America CEO Brian Moynihan said, “Strong capital markets results provided an important counterbalance to the COVID-19-related impacts on our Consumer business, and our industry-leading digital capabilities allowed us to support clients amid difficult working conditions.”

Currently, analysts expect a 5.67% and 0.01% fall in Bank of America’s 2020 and 2021 sales, respectively. Analysts also expect an adjusted EPS of $1.44 and $2.20 in 2020 and 2021, respectively.

Peer comparison

In the second quarter, Morgan Stanley (NYSE:MS) reported revenues of $13.4 billion—30.9% growth from $10.2 billion in the second quarter of 2019. Morgan Stanley beat analysts’ consensus estimate of $10.3 billion. The company’s adjusted EPS of $1.96 was above analysts’ estimates of $1.12 per share in the second quarter. However, the company reported a non-GAAP EPS of $1.23 in the second quarter of 2019.

In the second quarter, Goldman Sachs (NYSE:GS) reported revenues of $13.3 billion—40.5% growth from $9.5 billion in the second quarter of 2019. The company beat Wall Street analysts’ consensus estimate of $9.7 billion. Goldman Sachs’ adjusted EPS of $6.26 was above analysts’ estimates of $3.78 per share in the second quarter. The company reported a non-GAAP EPS of $5.81 in the second quarter of 2019.

Analysts’ recommendations for Bank of America stock

Among the 27 analysts tracking Bank of America stock, 15 recommend a “buy”—unchanged from the previous month. Meanwhile, 12 analysts recommend a “hold”—up from 11 in the previous month. None of the analysts recommend a “sell.” Analysts have an average target price of $28.53 on Bank of America. The target price implies a return of 16.0% based on the closing price of $24.60 on Wednesday. The consensus target price for the stock has risen from $27.72 in June—a rise of 2.9%.

Morgan Stanley and Goldman Sachs have average broker target prices of $54.15 and $243.08, respectively. These figures imply returns of 5.5% and 12.1%, respectively, over the next 12 months.

Stock performance

Bank of America stock rose 1.9% on Wednesday and ended the day at $24.60. At this closing price, the company’s market cap is $213.4 billion. Notably, the stock is trading 31.1% below its 52-week high of $35.72 and 37.1% above its 52-week low of $17.95. The stock has fallen by 30.2% year-to-date.

On Wednesday, Bank of America stock was trading 2.8% above its 20-day moving average of $23.92. Meanwhile, the stock is trading 1.9% above its 50-day moving average of $24.14 and 3.8% above its 100-day moving average of $23.71.

Bank of America has an upper Bollinger Band level of $25.48, while its lower Bollinger Band level is $22.48. On Wednesday, the stock closed near its middle Bollinger Band level of $23.98, which suggests that it’s neutral.

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