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Why Bank of America’s Q2 Earnings Might Take a Hit

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On Monday, Bank of America (NYSE:BAC) stock rose 0.7% and closed at $24.19. The stock was trading 32.3% below its 52-week high of $35.72. Meanwhile, the stock was trading 34.8% above its 52-week low of $17.95. At the closing price on Monday, the stock had a market capitalization of $209.9 billion.

Bank of America will likely report its financial results for the second quarter of 2020 on Thursday before the market opens.

Bank of America’s Q2 earnings expectation

Wall Street analysts expect Bank of America to post sales of $22.0 billion in the second quarter—a reduction of 5.3% YoY (year-over-year) compared to $23.2 billion in the second quarter of 2019. Also, analysts expect the company to report an adjusted EPS of $0.27 in the second quarter compared to $0.75 in the second quarter of 2019.

Investors and analysts expect a big hit to Bank of America’s earnings in the second quarter as it makes increased provisions for credit losses. On the other hand, the company will likely post an increased fee income due to elevated investment-related activities.

Analysts also expect Bank of America’s revenues to fall by 5.7% YoY in 2020 to $86.6 billion. The sales will likely remain flat YoY in 2021 at $86.6 billion. The adjusted earnings will likely fall by about 47.8% YoY in 2020 to $1.44 per share. However, the profits could rise by 52.8% YoY to $2.20 per share in 2021.

Analysts’ recommendations for Bank of America

Among the 27 analysts tracking Bank of America stock, 15 recommend a “buy,” while 12 recommend a “hold.” None of the analysts recommend a “sell.” Currently, analysts have a target price of $28.53 on the stock. On Monday, the stock was trading at a discount of 17.9% to analysts’ target price. The consensus target price for the stock has risen from $27.68 in June—a growth of 3.1%.

Last week, David Konrad of D.A. Davidson downgraded Bank of America from “buy” to “neutral.” The analyst also lowered his target price from $27 to $25. According to a report from TheFly, “The analyst continues to see the company offering the strongest balance sheet and the lowest risk profile in its peer group with the lowest risk profile, but warns that its results may not be able to keep pace with its peers based on the risk constraints.” The report also said, “Konrad adds that as Bank of America’s peers build reserves, its lower risk advantage will be reduced, also noting that with collapsing LIBOR spreads, its net interest income outlook is concerning.” 

Peer comparison

On Tuesday, JPMorgan Chase (NYSE:JPM) reported its second-quarter earnings results before the markets opened. In the second quarter, the company reported revenue of $33.8 billion—14.4% growth from $29.6 billion in the second quarter of 2019. JPMorgan beat Wall Street analysts’ consensus estimate of $30.3 billion. The company’s adjusted EPS of $1.38 was above analysts’ estimate of $1.04 per share in the second quarter. However, the company reported an adjusted EPS of $2.51 in the second quarter of 2019. The provision for credit losses rose to $10.5 billion—up from $1.1 billion in the same period the previous year.

Wall Street analysts expect Wells Fargo (NYSE:WFC) to post sales of $18.4 billion in the second quarter. The estimate represents a reduction of 14.7% YoY compared to $21.6 billion in the second quarter of 2019. Also, analysts expect the company to post an adjusted EPS of -$0.20 in the second quarter. The adjusted EPS was $1.30 in the second quarter of 2019.

Stock returns

Based on the closing price on Monday, Bank of America stock was trading 0.4% above its 20-day moving average of $24.09. The stock is also trading 0.5% above its 50-day moving average of $24.06 and 0.8% above its 100-day moving average of $24.00. Bank of America’s 14-day relative strength index number is 51, which indicates that the stock isn’t oversold or overbought.

Bank of America stock has an upper Bollinger Band level of $25.84, while its lower Bollinger Band level is $22.34. On Monday, the stock closed near its middle Bollinger Band level of $24.09, which indicates that it’s neutral.

Read Why George Soros Sold Most of His Financial Stocks to learn if financial stocks are in trouble.

Stay tuned to learn how Bank of America performed in the second quarter.

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