Is BAC Stock a Buy Before Q1 Earnings as Tariffs Stoke Recession Fear?

One of the biggest banks in the United States, Bank of America BAC, is scheduled to announce first-quarter 2025 results on April 15 before the opening bell.   Among BAC’s close peers, JPMorgan JPM is slated to report on April 11 and Citigroup C on April 15. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.  Bank of America’s fourth-quarter performance was solid, driven by impressive capital markets performance and growth in net interest income (NII). This time, the company’s performance will likely be decent. The Zacks Consensus Estimate for first-quarter revenues of $26.74 billion suggests 3.6% year-over-year growth.  In the past seven days, the consensus estimate for earnings for the to-be-reported quarter has been revised 1.3% upward to 81 cents. This indicates a 2.4% decline from the prior-year quarter, as rising provisions for credit losses, higher operating expenses and muted capital markets performance are likely to have hampered BAC’s bottom-line growth. Estimate Revision Trend   Image Source: Zacks Investment ResearchBank of America has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with the average beat being 5.80%. BAC Surprise History   Image Source: Zacks Investment ResearchFactors to Impact Bank of America’s Q1 ResultsNII: In the first quarter, the Federal Reserve kept interest rates unchanged at 4.25-4.5%. This is likely to have offered some support to Bank of America’s NII as the funding/deposit costs stabilized. However, an uncertain macroeconomic backdrop because of Trump’s tariff plans is likely to have resulted in a decent lending scenario. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was modest in the first two months of the quarter. Hence, BAC is expected to have witnessed a modest rise in loan demand. Similarly, JPMorgan and Citigroup are likely to have recorded a marginal improvement in loan demand.  BAC expects NII (fully tax equivalent) to be between $14.5 billion and $14.6 billion for the quarter.   The Zacks Consensus Estimate for NII of $14.42 billion suggests a 2.8% year-over-year increase. Our estimate for NII is $14.38 billion.  Investment Banking (IB) Fees: Global mergers and acquisitions (M&As) in the first quarter of 2025 were less impressive than previously expected. While deal value and volume rose marginally during the quarter, this was majorly led by the Asia Pacific region. The year started on an extremely positive note with the expectations of robust IB performance on the back of the Trump administration being business-friendly and the likelihood of tax cuts and deregulations.   However, none of these materialized, and the rebound fizzled as ambiguity over the tariff and ensuing trade war resulted in extreme market volatility. These developments have led to economic uncertainty, with data indicating a slowdown in the U.S. economy and mounting inflationary pressure. Hence, amid such a backdrop, companies started rethinking their M&A plans despite stabilizing rates and having significant investible capital. So, Bank of America’s advisory fees are likely to have recorded a marginal rise.  Also, the IPO market saw signs of cautious optimism, given the market volatility and geopolitical challenges. Further, the subdued equity market performance led to weak activity in follow-up equity issuances. Bond issuance volume was subdued for similar reasons. Therefore, BAC’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have recorded a modest increase during the to-be-reported quarter.  The Zacks Consensus Estimate for IB income of $1.59 billion indicates a rise of 1.7% from the prior-year quarter. We expect IB income to be $1.71 billion.  Trading Income: Client activity and market volatility were solid in the first quarter. The uncertainty over the impact of tariffs on the U.S. economy and the Fed’s monetary policy drove client activity as investors shifted to safe havens. Further, volatility was high in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, BAC is likely to have recorded a solid performance in trading revenues this time.  The Zacks Consensus Estimate for total sales and trading revenues of $4.89 billion suggests a 4.1% fall on a year-over-year basis. Our estimate for the metric is the same as the consensus estimate.  Expenses: While BAC managed expenses prudently in the past, expansion into newer markets by opening financial centers and efforts to digitize operations and upgrade existing financial centers are expected to have kept non-interest expenses elevated in the to-be-reported quarter.  Management expects non-interest expenses to be approximately $17.6 billion (including $0.6-$0.7 billion of seasonally elevated costs).  Our estimate for non-interest expenses stands at $17.63 billion.  Asset Quality: Bank of America is likely to have set aside a significant amount of money for potential delinquent loans, given the expectations of higher for longer interest rates and the impact of Trump’s tariffs on inflation.   Our estimate for provision for credit losses is pegged at $1.18 billion.  The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.48 billion implies a 10.2% rise from the prior-year quarter. Also, the consensus estimate for non-performing assets (NPAs) of $6.52 billion suggests a 7.1% rise. Our estimates for NPLs and NPAs are pegged at $6.03 billion and $6.13 billion, respectively.What Our Model Unveils About Bank of America’s Q1 EarningsOur proven model predicts an earnings beat for Bank of America this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is the case here, as you can see below.  Bank of America has an Earnings ESP of +1.29%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.  It carries a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.BAC’s Price Performance & Valuation AnalysisIn the first quarter, BAC shares lost 5.1%, underperforming its close peers – JPMorgan and Citigroup. On the other hand, the stock outperformed the S&P 500 Index. Q1 BAC Price Performance  Image Source: Zacks Investment ResearchLet’s check out the value Bank of America offers investors at current levels. The stock is trading at a 12-month trailing price-to-tangible book (P/TB) of 1.35X. This is below the industry’s 2.31X. This shows that the stock is currently inexpensive. Price-to-Tangible Book Ratio (TTM)  Image Source: Zacks Investment ResearchFurther, BAC stock is trading at a discount compared with JPMorgan, which has a P/TB of 2.37X. On the other hand, Citigroup has a P/TB of 0.68X, making it inexpensive compared with Bank of America.Evaluating Bank of America Stock Ahead of Q1 EarningsThe interest rate pressure that Bank of America has faced since 2023 has subsided to some extent, and risks surrounding deposit outflows have abated. Further, the industry-wide lending scenario is expected to be decent and the company will gain from the same.   The company’s aggressive branch expansion across the United States as part of a broader strategy to solidify customer relationships and tap into new markets will drive NII growth over time. BAC announced plans to open more than 165 new financial centers by 2026-end. This will also help capitalize on cross-selling opportunities over the long term. Further, it spends $13 billion annually on technology, of which almost $4 billion will be utilized for new technology initiatives this year.  Nonetheless, BAC continues to face adverse impacts from prolonged higher rates, leading to high deposit costs. Also, the volatile nature of the capital markets business is expected to make fee income growth challenging. Mounting operating expenses and weak asset quality are other headwinds. Additionally, Trump’s tariffs are likely to result in a rise in inflation, and several market participants have raised the expectation of recession in the coming days. This is worrisome for BAC. While Bank of America's prospects remain promising, investors should not rush to buy the stock. Those interested in adding it to their portfolios might be better off waiting until after the release of quarterly numbers for clarity and a potentially attractive entry point.  Those who already have the BAC stock in their portfolio can hold on to it because it is less likely to disappoint over the long term.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Bank of America Corporation (BAC): Free Stock Analysis Report JPMorgan Chase & Co. (JPM): Free Stock Analysis Report Citigroup Inc. (C): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks